1785, an absurd perversion of (Welsh) rabbit, as if from rare (adj.) + bit (n.). See Welsh.
Old English walhnutu "nut of the walnut tree," literally "foreign nut," from wealh "foreign" (see Welsh) + hnutu (see nut). Compare Old Norse valhnot, Middle Low German walnut, Middle Dutch walnote, Dutch walnoot, German Walnuss. So called because it was introduced from Gaul and Italy, distinguishing it from the native hazel nut. Compare the Late Latin name for it, nux Gallica, literally "Gaulish nut." Applied to the tree itself from 1600 (earlier walnut tree, c. 1400).
"to cheat, to drive a hard bargain," 1824, from Jew (n.) (compare gyp, welsh, etc.). "Though now commonly employed without direct reference to the Jews as a race, it is regarded by them as offensive and opprobrious" [Century Dictionary, 1902]. The campaign to eliminate it in early 20c. was so successful that people also began to avoid the noun and adjective, using Hebrew instead.
Now I'll say 'a Jew' and just the word Jew sounds like a dirty word and people don't know whether to laugh or not. [Lenny Bruce, "How to Talk Dirty and Influence People," 1965]