YNET has a fascinating article, הרב קנייבסקי: לפטר עובדים ערבים בישיבות, which quotes R' Chaim Kanievsky on this issue.
After the attack on Mercaz Harav, several Yeshiva administrators asked R' Kanievsky if they should fire their Arab workers. He replied:
אסור בשום אופן להעסיק ערבים, חס ושלום. זו סכנת נפשות
It is absolutely prohibited to employ Arabs, it is life threatening
He also said that in any case we should hire Jews to give them a livelihood:
וכי אין יהודים שיעבדו ויתפרנסו?
are there no Jews who will work and make a living?
What is very encouraging is that almost all the talkbacks (including many non-religious Jews) are very supportive of what R' Kanievsky said.
I can't wait to hear what the left wing Knesset members say. It wouldn't surprise me if they had him investigated for incitement.