What is the origin of this slang term?
There are a few theories.
Rosenthal (entry פראייר) says it comes from the German freier, meaning "suitor, bachelor". He says that the word went from German to Yiddish, where it came to be viewed negatively, "a person lacking social and financial confidence", and eventually came to mean "a person easy to deceive, take advantage of."
A commenter on this Haaretz article explained the development this way:
As with much modern Hebrew slang, `freier` is derived from Yiddish where it originally meant a "suitor" (it`s still used that way in Alsatian Yiddish) but came to mean the "customer of a prostitute." and eventually just a `sucker`.
Others say that it derives from the German word freiherr - a title of nobility. The Wikipedia article for Fraier has the following explanation (the English entry was a too literal translation of the Hebrew one, so I've adjusted it for clarity):
It is possible that the word was chosen because of the prominent German tone of the word, in order to suggest the local stereotype that the Israeli Jews that originated from Germany were too [accepting] of authority, [sticking] to firm and formal rules [at the expense] of flexibility, [quick-wittedness] and improvisation.
Another theory, presented by a linguist friend of mine, says that:
It's from Russian criminal slang, from Yiddish. The Jewish mafias in Odessa called non-criminals freiers. It's Yiddish for "free-ones". From the Jewish gangs it made its way into general Russian culture. It's mentioned in The Gulag Archipelago, where it is noted that the criminals in the gulag called the political prisoners freiers. But I was told that it's use is much wider than that; i.e. not just for non-criminal prisoners, but for all non-criminal classes in society.So we have three very different etymologies here. My personal wish? That Israelis would worry more about the origin of the word, and less about how to avoid being one...