July 1920 saw the beginning of the British Mandate in Palestine. Schatz believed in the commercial viability of Bezalel and hoped it would take part in most of the new industrial initiatives in the country. For now, he devoted his energy to developing the potential of the School's craft workshops, and successfully introduced the use of Bezalel ceramic tiles as decorations on the new public buildings and private homes of Tel Aviv.
Yet the fortunes of the Bezalel School went from bad to worse. The Zionist organizations had lost their interest in it, and Schatz's fundraising campaigns were a failure. In the 1920s Schatz and Bezalel found themselves outside the process of Zionist renewal: they were ideologically, socially, politically, and artistically alienated. Bezalel's style was now considered old-fashioned, the themes favored by its artists irrelevant. The School went into a serious decline and closed down in 1929. It would reopen in a very new guise in 1935, but Schatz would not live to see that day.