The polarization properties of diffraction by rectangle phase gratings with periods from 1 to 10 times wavelength are investigated by FDTD algorithm and Fourier transform. It is shown that the grating has different effective indices of refraction for TE wave and TM wave. The effective index for TE wave is always larger than that for TM wave. This makes the diffraction intensity of TE wave is different from that of TM wave, and which is bigger is determined by the optical thickness of the grating.