Water is a scarce resource in Israel. With fluctuating supplies and an increasing demand, the need for using alternative water sources such as reclaimed wastewater, brackish groundwater and desalinated seawater increases. This paper investigates the economy-wide effects of a declining supply of natural fresh water (ground and surface water) and the increasing utilization of alternative water sources (recycled wastewater, brackish water, desalinated seawater). To account for different production structures and usage options, a single country Computable General Equilibrium (CGE) model is used, in which several water activities produce differentiated water commodities. These water commodities are used as intermediate inputs in other production activities or are consumed by households. Results suggest that especially the agricultural sector would be affected by a reduction of natural fresh water availability, as it is the largest water user. However, the effect can be mitigated if substitution possibilities with alternative water sources are increased, especially the desalination of seawater can contribute to this. The rest of the economy is affected to a lesser extent, as water is only a minor input in other sectors and the water sector itself is small compared to the whole Israeli economy.