Per capita income inequality within the rural Arab population is much lower than within the rural Jewish population. Belonging to the Arab minority explains between 10% and 16% of rural income inequality. Schooling, which is much lower among the rural Arab population, and household size, which is much higher among the rural Arab population, also explain significant fractions of inequality. Geographic location and gender of the head of household explain much smaller fractions. Simulations reveal that rural per capita income inequality could potentially be reduced by a uniform increase in schooling or by a uniform decrease in household size The equalizing effect of schooling is higher for Arab households, while the equalizing impact of reduced fertility is roughly similar for Jewish households and for Arab households. In order to succeed in reducing per capita income inequality, schooling-enhancing policies should be directed at the lower end of the schooling distribution, while fertility-reducing policies should be directed at high-fertility households.