Physiological drought response was evaluated for two olive cultivars commonly grown under rain fed conditions ('Souri' and 'Picual') and another selected for intensive, irrigated cultivation ('Barnea'). 'Souri' is a traditional local Israeli cultivar, 'Picual' originated in Spain and 'Barnea' is a modern Israeli cultivar.Trees in pots were alternatively provided well irrigated conditions (100% FC, field capacity) or allowed to dry, first to 33% FC and then to 10% FC. Under conditions of greatest water availability, the 'Barnea' cultivar had the highest stomatal conductance and net photosynthesis, significantly higher than that found in 'Souri'. Stomatal conductance and leaf water potential of 'Souri' and 'Picual' at 33% FC were not affected relative to the well irrigated treatment but decreased significantly at 10% FC. Photosynthetic parameters of 'Souri' and 'Picual' were not affected by water stress. Stem growth was also not affected by drought in 'Souri' but was reduced at 10% FC in 'Picual'. In contrast, the 'Barnea' showed higher sensitivity to low water availability with stomatal conductance and net photosynthesis reduced at 33% FC and sharp decreases in these and leaf water potential occurring at 10% FC. At 10% FC 'Barnea' trees showed stem shrinkage, a phenomenon not observed in the other cultivars. These results suggest a tradeoff between selection for suitability in intensively irrigated orchards and tolerance to drought.