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Thirty-four English-speaking Grade 2 children attending a bilingual English-Hebrew elementary school were administered a phonological task designed to tap sensitivity to a phonemic contrast (/ts/ vs. /s/) that occurs productively in Hebrew but is phonotactically constrained in English. The results showed that children experienced more difficulty discriminating the contrast in onsets than in rimes, which is consistent with predictions made from a language transfer hypothesis. Accuracy on this measure was related to word reading ability in both Hebrew and English. Errors made by choosing orthographic foils were more frequent than were errors made by choosing phonological foils. Evidence of linguistic interdependence was seen in the cross-linguistic relation of phonological tasks to word reading ability in both languages. There was no interaction of language transfer with reading ability. This pattern of results …