In Erez Israel, P.A.I. was first established in 1925 by newly arrived young Orthodox settlers, but it broke up after a short period and was reestablished in Tel Aviv in 1933, under the leadership of Binyamin Mintz of Poland and Ya'akov Landau of Germany. The Histadrut ha-Po'alim ha-Haredit ("Federation of Orthodox Workers"), which had been formed shortly before at Petah Tikvah, joined the new party. It fought for the upbuilding of the country as its central ideal, within Agudat Israel. At the Third Kenesiyyah Gedolah ("Great Synod") of Agudat Israel (Marienbad, Czechoslovakia, 1937), P.A.I. advocated support for a Jewish state according to the Peel Commission's plan and the setting up of kibbutzim with the assistance of Zionist funds. In spite of the Great Synod's rejection of its policy, P.A.I. groups from Kefar Sava and Gederah settled on Jewish National Fund land in May 1944 and established the Kibbutz Hafez Hayyim. P.A.I. continued to go its own way after the national convention at Kefar Sava the following year, at which Binyamin Mintz was elected to the leadership, and in 1946 the World Union of Po'alei Agudat Israel was founded at a convention in Antwerp. This step was regarded as secession from World Agudat Israel, although no formal severance took place. P.A.I. members next joined the Haganah, and Binyamin Mintz became a member of the yishuv's security committee.

Shortly after the establishment of the state, P.A.I., under a special arrangement, joined the trade union department of the Histadrut without joining the Labor Federation as such. On the other hand, it did not dissociate itself completely from Agudat Israel; in particular, it continued to accept the authority of its Mo'ezet Gedolei ha-Torah ("Council of Torah Sages"). In the elections to the third, fourth, and fifth Knessets, the two parties appeared on joint lists, and both left the government coalition in 1952 over the issue of the drafting of girls to national service. In 1960, however, P.A.I. contravened a decision of the Mo'ezet Gedolei ha-Torah by joining the government, and as a result the formal ties with Agudat Israel finally came to an end. In the ejections to the sixth Knesset, P.A.I. appeared independently (as it had done in the second), and polled 1.8% of the votes, with two seats in the House. After the death of Binyamin Mintz in 1961, R. Kalman Kahana was the party's leader. P.A.I. does not frown upon secular education and both boys and girls are members of its youth movement. It has two kibbutzim, Hafez Hayyim and Shaalbim, as well as several moshavim. In 1948 the Israel Youth Movement, Ezra, affiliated to the P.A.I.