UPDATE 3-Netanyahu vows "huge" reform to end Israeli protests
* Newspaper poll finds PM's popularity plummeting
* Peres sees a "crisis of the middle class"
* Central bank chief backs PM's plan
(Adds protests to continue, paragraphs 9-10)
JERUSALEM, July 26 (Reuters) - Prime Minister Benjamin Netanyahu pledged on Tuesday to implement "huge" housing reforms next week to try to stem growing protests against the high cost of living in Israel that have sapped his popularity.
Student-led activists have set up tent camps and held often rowdy sit-down demonstrations in Israeli cities this month to demand lower rent and land-ownership prices.
In parallel, doctors have intensified a more than four-month-old strike for better wages and conditions, spreading the sense of crisis among a middle class that bears Israel's heavy tax burden and sustains its conscript military.
"The housing crisis in Israel is a real problem. This is not a fake issue and whoever has empathy in his heart understands it is a problem," Netanyahu said in remarks to reporters broadcast live on television and radio stations.
He unveiled a plan, dubbed "Residence in Reach", under which the broad-based, conservative coalition government would enable the sale of more state-owned land, provide low-rent housing for students and the poor, and cut through red tape on realty deals.
"We will complete two huge changes next week, because ultimately you have to breach the bureaucracy," said Netanyahu, a free-market champion who, as finance minister under a previous administration, leaned on Israel's public sector spending.
His promise on student housing received a smattering of applause from demonstrators watching the news on television in Tel Aviv. They dismissed other remarks as "spin".
Finance Minister Yuval Steinitz, speaking after Netanyahu, said property prices would "stop climbing, or begin to fall" by 2012.
Activists said they would keep up their protests.
"The people of Israel took to the streets because of the housing problem, but they will stay because of the rest. And they will stay until the prime minister and the government of Israel present a serious, revolutionary plan that will solve in depth and immediately the social crisis the majority of the nation is suffering," said activist leader Daphni Leef.
A poll published in the liberal Haaretz newspaper on Tuesday found 32 percent of Israelis were satisfied with Netanyahu's performance while 54 percent were not, a reversal of survey figures from May.
Then, when Netanyahu received standing ovations at the U.S. Congress as he outlined tough terms for Middle East peace, 51 percent of Israelis supported him and 31 percent of respondents said they opposed his policies, according to Haaretz.
Bank of Israel Governor Stanley Fischer backed Netanyahu, saying "the long-term solution to the problem of housing prices must come mainly from an increased supply of housing".
Home prices have jumped about 50 percent since 2008. Fischer partly blamed cut-rate mortgages that arose from Israel's reduction of interest rates to 0.5 percent at the outset of the global financial crisis. He has since raised the key rate 10 times to 3.75 percent, while the central bank has also tightened restrictions on mortgages to try to bring down housing prices.
The crisis is paradoxical, coming as Israel enjoys economic growth that is among the world's fastest, with 5 percent seen for 2011. Despite low wages compared with Western countries, unemployment was at a two-decade low of 5.7 percent in May.
But high prices of basic goods have become headline news.
Early in the year, protests forced Netanyahu to cancel a planned tax hike on petrol. Last month, public outrage over soaring cottage cheese prices led dairies and retailers to cut prices and the government to find ways to increase competition.
"We all feel that this is a crisis of the middle class," President Shimon Peres told reporters separately. (Additional reporting by Maayan Lubell and Ori Lewis; Editing by Dan Williams and Elizabeth Piper)
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