Proposals to draft ultra-Orthodox men into the Israeli army, ending an exemption that has lasted for 64 years, are bitterly dividing prime minister Binyamin Netanyahu's coalition government ahead of a crucial debate on Monday.

A new bill allowing the draft is due to be submitted for its first reading in the Knesset, following a ruling by the country's supreme court that the Tal Law, exempting Haredi Jews from military service, was unconstitutional. That law is due to expire on 1 August, but what will replace it has become the subject of ferocious argument over one of the most sensitive issues in Israeli society.

As Netanyahu faced a weekend of crisis talks with his deputy and political rival, Kadima leader Shaul Mofaz, senior government sources conceded that their chances of reaching a solution to save their coalition were slim. Mofaz argues that Haredi conscription is essential to share the burden of service that now falls on secular Israelis, who serve three years in the military after attending high school and can be called up for reserve duty until the age of 45.

Netanyahu's Likud party agrees in part but insists that to force the Haredim – a population of around 700,000 – into the army in "one fell swoop" after 64 years of exemption is impossible. "I would like to see the Haredim join the IDF [Israel Defence Forces] at 18 years old," Moshe Ya'alon, strategic affairs minister and an ally of Netanyahu's, told Israel's army radio last week. "But if we try this, we will start a civil war."

The debate has gripped the Jewish state. For Israel's ultra-Orthodox, the preservation of the Haredim's right to study rather than serve represents a battle for the preservation of the Jewish people, pitting the value of the body against the worth of the soul.

In Haredi communities the mood is defiant. Mea Shearim is a closed, strictly ultra-Orthodox community on the outskirts of Jerusalem's Old City. Apart from the murmur of prayers in the yeshivas and the occasional shout of young schoolboys, its old stone alleyways are hushed. Men in broad hats and frockcoats walk the streets quickly, their eyes cast to the ground. Life here has not changed for hundreds of years and no one thinks it will change now.

"The best life in the world is from those red traffic lights until the end of this street," boasted Yossi, 28, indicating the borders of Mea Shearim where he was born and raised. "About 50% of people here do not hold Israeli IDs. They were here hundreds of years before Israel. The government can do whatever it wants; the people here will go and sit in jail rather than go to the army. They will never serve."

Pointing out a woman who was covered head to toe in black, lace covering her face and pushing a pram briskly along the pavement – her child also entirely obscured with black cloth – he said people here were becoming more religious.

Yossi did serve in the army but he describes himself as religious rather than Orthodox. "My father didn't speak to me when I joined the army. He said, 'I'm not your father any more.' But after two years he got over it," he said. "I think a little differently. I believe if you take from the government you have to give back to it."

This is the opinion of most Israelis, many of whom are outraged that the state pours money into a community that does not work, typically has large numbers of children, does not pay taxes and does not serve in the military.

Last Saturday about 20,000 people demonstrated in Tel Aviv to demand that the country's Orthodox and Arab citizens share the burden of military service. Senior retired military figures and political leaders, including the former opposition leader Tzipi Livni, joined the crowd of protesters, calling for "one people, one draft".

Yosam Merav, a 16-year-old from Tel Aviv, stood with his father in front of a sign reading "the suckers' tent". He said: "I'm about to be enlisted. I'm happy to serve but I want to feel like the country I serve is a country where everything is equal. I don't want to feel like a sucker."

Yaakov Uri, who runs a pizza parlour in Geula, an Orthodox neighbourhood in Jerusalem, said the problem was that secular Israelis like Yosam had no understanding of the sacrifices religious Jews make for them. "You think it's so easy to sit and study all day, bring up seven children on $700 a month? No, it's very hard," he said.

These men, in his opinion, are as critical for the defence of Israel as the army. They provide spiritual protection. "The Torah is saving and guarding the Jews," Uri said. "Take the Iraq war. Saddam Hussein sent 39 Scud missiles into Israel. They didn't touch anyone. What is this? It wasn't the army – they sat with their arms folded. It was the Torah," he said. "There many kinds of soldiers, on planes, on ships, but also in the yeshiva."

As a compromise, he suggested that yeshiva students who were not truly devoted to Torah studies – around one-third, he thought – should serve in the army. But this was provided, of course, that they were served kosher food, given enough time to pray and segregated from women.

Like Uri, Yakov Horowitz believes that the current crisis is the result of the ignorance of secular Israelis. Formerly a barrister in the United States, he is now an Orthodox rabbi running a religious school in Mea Shearim.

"Mofaz is just a politician trying to get votes, but I'd like to tell him you are hurting yourself more than you realise," Horowitz said. "The burden is equal already, shared between the body and the soul. If the soul is not getting an equal part in the battle against our enemies, we will lose. It would be a fatal mistake."

Like Moshe Ya'alon, Horowitz warned that, if the Haredim were pushed into the army, the result would be explosive. People who valued the Haredim's role in society, he said, would protect it "by any means possible".