Schatz's supporters in Berlin formed a committee called the "Bezalel Society for Establishing Jewish Cottage Industries and Crafts in Palestine" whose primary goal was to oversee the creation of a network of artisan workshops. These were meant to provide employment for the impoverished Jews of Ottoman-ruled Jerusalem by producing goods for local tourists as well as for export to the Jews of the Diaspora. The first workshop to open its doors was the carpetweaving department in 1906, followed by workshops for metalwork, ceramics, woodcarving, basketry, lithography, and photography.
With few students and fewer qualified teachers, the school in its early years was particularly prone to setbacks in its development. Schatz's position as the only teacher of drawing, painting, and sculpture for nearly three years ensured that his artistic preferences and taste served as the primary influence for Bezalel students. The close connection between the school and the workshops was quite evident and the emphasis on decorative arts was clearly manifested in the curriculum. A student's typical day included at least two hours of practice in one of the workshop disciplines. Hebrew was taught six hours a week, alongside classes in art history, perspective, and anatomy.
Schatz began collecting materials for a museum as soon as he arrived in Palestine. Opened to the public in 1912, the museum featured native flora and fauna that Schatz hoped would serve as inspiration for the students and artisans. It also included an ethnographic and archaeological division comprising locally discovered artifacts and traditional Jewish ritual objects. Finally, there was a small fine arts section for which Schatz assiduously sought out works created by Jewish artists or depicting Jewish themes. Mordechai Narkiss, a student of Schatz's, served as head of the museum from the mid 1920s until his death in 1957. Under his leadership the collection expanded to international dimensions and incorporated objects as diverse as African art and Renaissance drawings. In 1965, the collections of the Bezalel Museum became the core of the newly founded Israel Museum.