Figure 1. Administrative Divisions, Israel, 1988

ISRAEL OBSERVED THE fortieth anniversary of its founding as a state in 1988. Although a young nation in the world community, Israel has been profoundly influenced by Jewish history that dates back to biblical times as well as by the Zionist movement in nineteenth- and twentieth-century Europe. These two strands, frequently in conflict with one another, helped to explain the tensions in Israeli society that existed in the late 1980s. Whereas Orthodox Judaism emphasized the return to the land promised by God to Abraham, secular Zionism stressed the creation of a Jewish nation state.

Zionism historically has taken different forms, and these variations were reflected in twentieth-century Israeli society. The leading type of early Zionism, political Zionism, came out of Western Europe in large measure as a response to the failure of the emancipation of Jews in France in 1791 to produce in the succeeding century the degree of the anticipated reduction in anti-Semitism. Jewish assimilation into West European society was inhibited by the anti-Jewish prejudice resulting from the 1894 trial of Alfred Dreyfus, a French Jewish officer. Theodor Herzl, a Hungarian Jew, in 1896 published a book advocating the creation of a Jewish state to which West European Jews would immigrate, thus solving the Jewish problem. Rather than emphasizing creation of a political entity, cultural Zionism, a product of oppressed East European Jewry, advocated the establishment in Palestine of self-reliant Jewish settlements to create a Hebrew cultural renaissance. Herzl was willing to have the Jewish state located in Uganda but East European Jews insisted on the state's being in Palestine, and after Herzl's death in 1904, the cultural Zionists prevailed. Meanwhile, the need arose for practical implementation of the Zionist dream and Labor Zionism came to the fore, appealing particularly to young Jews who were influenced by socialist movements in Russia and who sought to flee the pogroms in Eastern Europe. Labor Zionism advocated socialism to create an equitable Jewish society and stressed the integration of class and nation. David Ben-Gurion, who came to Palestine in 1906, became a leader of this group, which favored a strong economic basis for achieving political power. Labor Zionism in turn was challenged by the Revisionist Zionism of Vladimir Jabotinsky, a Russian Jew who glorified nationalism and sought to promote Jewish immigration to Palestine and the immediate declaration of Jewish statehood.

The Zionist cause was furthered during World War I by Chaim Weizmann, a British Jewish scientist, skilled in diplomacy, who recognized that Britain would play a major role in the postwar settlement of the Middle East. At that time Britain was seeking the wartime support of the Arabs, and in the October 1915 correspondence between Sharif Husayn of Mecca and Sir Henry McMahon, British high commissioner in Egypt, Britain endorsed Arab postwar independence in an imprecisely define 2000 ed area that apparently included Palestine. In November 1917, however, Britain committed itself to the Zionist cause by the issuance of the Balfour Declaration, which stated that the British government viewed with favor "the establishment in Palestine of a National Home for the Jewish People," while the "civil and religious rights of existing non-Jewish communities in Palestine" were not to suffer. These two concurrent commitments ultimately proved irreconcilable.

During the succeeding decades until the Holocaust conducted by Nazi Germany during World War II, Jewish immigration to Palestine continued at a fairly steady pace. The Holocaust, in which nearly 6 million Jews lost their lives, gave an impetus to the creation of the state of Israel: thousands of Jews sought to enter Palestine while Britain, as the mandatory power, imposed limits on Jewish immigration to safeguard the indigenous Arab inhabitants. An untenable situation developed, and in 1947 Britain referred the Palestine problem to the United Nations General Assembly. The latter body approved a resolution on November 29, l947, calling for a complex partition of Palestine into an Arab and a Jewish state. The Arab Higher Committee rejected the resolution, and violence increased. The establishment of the State of Israel was declared on May 14, 1948, and Arab military forces began invading the territory the following day. By January 1949, Israel had gained more territory than had been allotted by the partition East Jerusalem and the West Bank of the Jordan River remained in Jordanian hands as a result of fighting by the Arab Legion of Transjordan, and the Gaza area, and Gaza remained in Egyptian hands (see fig. 1). Israel held armistice talks with the Arab states concerned in the first half of 1949 and armistice lines were agreed upon, but no formal peace treaties ensued.

Having achieved statehood, the new government faced numerous problems. These included the continued ingathering of Jews from abroad, the provision of housing, education, health and welfare facilities, and employment for the new immigrants the establishment of all requisite government services as well as expanding the country's infrastructure the expropriation of Arab lands--including lands left by Arabs who had fled during the 1948 war as well as by Arabs obliged by the government to relocate--so as to provide a livelihood for new immigrants the establishment of a military government to administer Arab population areas and the growth of the Israel Defense Forces (IDF) to safeguard national security.

Tensions continued to exist between Israel and its neighbors, and as a result a series of wars occurred: in 1956 in the Suez Canal area in June 1967, during which Israel captured the Golan Heights, the Sinai Peninsula, the Gaza Strip, East Jerusalem, and the West Bank, adding about 800,000 Palestinian Arabs to its population and in October 1973, a war that destroyed Israel's image of its invincibility. Israel's poor showing in the early days of the 1973 war led to considerable popular disenchantment with the ruling Labor Party this declining popularity, combined with the growing number of Oriental Jews who identified more readily with the religious expressions of Menachem Begin than with Labor's socialist policies, contributed to the coming to power of the conservative Likud Bloc in the May 1977 elections.

The rise of Oriental Jews illustrated the changing pattern of ethnicity in the course of Jewish history. In the late nineteenth century, the majority of the Jewish population in Palestine was of Sephardic (Spanish or Portuguese) origin, but by the time the State of Israel was created Ashkenazim (Jews of Central or East European origin) constituted 77 percent of the population. By the mid-1970s, however, as a result of the influx of Oriental Jews from North Africa and the Middle East, the Ashkenazi majority had been reversed, although Ashkenazim still dominated Israel's political, economic, and social structures. Oriental immigrants tended to resent the treatment they had received in transition camps and development towns at the hands of the Labor government that ruled Israel for almost thirty years. Furthermore, Orientals experienced discrimination in housing, education, and employment they recognized that they constituted a less privileged group in society that came to be known as the "Second Israel."

In addition to the Ashkenazi-Oriental division, Israel has faced a cleavage between religiously observant Orthodox Jews and secular Jews, who constituted a majority of the population. In broad terms, most secular Jews were Zionists who sought in various ways, depending on their conservative, liberal, or socialist political views, to support governmental programs to strengthen Israel economically, politically, and militarily. Jews belonging to religious political parties, however, tended to be concerned with strict observance of religious law, or halakah, and with preserving the purity of Judaism. The latter was reflected in the views of religiously observant Jews who accepted as Jews only persons born of a Jewish mother and the ultra-Orthodox who considered conversions by Reform or Conservative rabbis as invalid.

A further divisive element in Israeli society concerned the role of minorities: Arab Muslims, Christians, and Druzes. These sectors together constituted approximately 18 percent of Israel's population in late 1989, with a birth rate in each case higher than that of Jews. Israelis in the late 1980s frequently expressed concern over government statistics that indicated that the high birthrate among Arabs in Israel proper (quite apart from the West Bank) had resulted in an Arab population majority in Galilee. They were concerned as well over the comparative youth of the Arab population in comparison with the Jewish population. In general, members of the ethnic minorities were less well off in terms of employment, housing, and education than the average for the Jewish population.

The role of the Arab minority in Israel's economy has historically been controversial. Labor Zionism advocated that all manual labor on kibbutzim and moshavim (see Glossary) be performed by Jewish immigrants themselves. As immigration increased, however, and immigrants had skills needed by the new state in areas other than agriculture, cheap Arab labor came to be used for agricultural and construction purposes. After the annexation of the West Bank and the Gaza Strip in 1967, Arab day laborers became an even more important factor in the Israeli economy, providing as much as 30 percent of the work force in some spheres, and in many instances replacing Oriental Jews who had performed the more menial tasks in Israeli society.

Despite its historical importance in Israel, agriculture has not had major economic significance. For example, in 1985 agriculture provided just over 5 percent of Israel's gross domestic product (GDP--see Glossary) whereas industry contributed almost five times as much. Israel's skilled work force excelled in the industrial sphere, particularly in high-technology areas such as electronics, biotechnology, chemicals, and defense-related industries or in such highly skilled occupations as diamond cutting.

Although Israel had human resources, the lack of capital on the part of many new immigrants after 1948 obliged the government to provide funds for developing the country's infrastructure and for many enterprises. This policy resulted in a quasi-socialist economy in which ownership fell into three broad categories: private, public, and Haltistadrat Haklalit shel HaOvdim B'Eretz Yisrael (General Federation of Laborers in the Land of Israel) known as Histadrut (see Glossary), the overall trade union organization. Israel depended to a large degree on funds contributed by Jews in the Diaspora (see Glossary) to provide government services necessary to settle new immigrants and to establish economic ventures that would ensure jobs as well as to maintain the defense establishment at a high level of readiness, in view of Israel's position as a "garrison democracy" surrounded by potential enemies. Despite the inflow of money from Jews in the Diaspora, as a result of large government spending for defense and domestic purposes, Israel has generally been a debtor nation and has relied heavily on grants and loans from the United States. Israel in the early 1980s also had to deal with runaway inflation that reached about 450 percent in fiscal year (FY--see Glossary) 1984. To curb such inflation, the government instituted the Economic Stabilization Program in July 1985 that reduced inflation in 1986 to 20 percent.

By 1987, the Economic Stabilization Program had led to a significant increase in economic activity in Israel. Increased certainty brought about by the Economic Stabilization Program stimulated improved growth in income and productivity. Between July 1985 and May 1988, a cumulative increase in productivity of 10 percent occurred. The 1987 cuts in personal, corporate, and employer tax rates and in employer national insurance contributions stimulated net investment during the same period.

The freezing of public sector employment occasioned by the Economic Stabilization Program began lessening the role of government in the economy and of increased the supply of labor available to the business community. However, the outbreak of the intifadah (uprising) in December 1987 had an adverse impact on these trends.

The government has played a major role in social and economic life. Even prior to the achievement of statehood in 1948, the country's political leaders belonged primarily to the Labor Party's predecessor, Mapai, which sought to inculcate socialist principles into various aspects of society. Creating effective government under the circumstances prevailing in 1948, however, entailed compromises between the Labor Zionist leadership and the Orthodox religious establishment. These compromises were achieved by creating a framework that lacked a written constitution but relied instead on a number of Basic Laws governing such aspects as the organization of the government, the presidency, the parliament or Knesset, the judiciary, and the army. An uneasy tension continued, however, between religiously observant and secular Jews. For example, in protest against the proposed new Basic Law: Human Rights (and a possible change in the electoral system), which Agudat Israel, a small ultra-Orthodox religious party, believed would have an adverse effect on Orthodox Jews, in early November 1989 the party left the National Unity Government for two months.

Until 1977 the government operated under a political power system with two dominant parties, Labor and Likud. As a result of the 1977 elections, in which Labor lost control of the government, a multiparty system evolved in which it became necessary for each major party to obtain the support of minor parties in order to govern, or for the two major parties to form a coalition or government of national unity, as occurred in 1984 and 1988. The result of Israel's proportional electoral system, in which voters endorsed national party lists rather than candidates in a given geographic area, has been a stalemate in which the smaller parties, especially the growing right-wing religious parties, have been able to exert disproportionate influence in the formation of governments and on government policies. This situation has led to numerous proposals for electoral reform, which were still being studied in early 1990, but which had a marginal chance of enactment because of the vested interests of the parties involved.

A major factor in Israel's political alignment has been its relations with other countries, particularly those of the West, because of its dependence on financial support from abroad. Although Israel's relations with the United States and Western Europe have generally been good, since late 1987 criticism has grown in the West of Israel's handling of the uprising in the occupied territories of the West Bank and the Gaza Strip. The agreement by the United States in December 1988 to initiate discussions with the Palestine Liberation Organization (PLO) has indicated that United States and Israeli interests may not necessarily be identical. Furthermore, the feeling has increased that the United States should exert greater pressure on Israel to engage in negotiations with the Palestinians and to abandon its "greater Israel" stance, as expressed by Secretary of State James A. Baker on May 22, l989. In October 1989, Baker proposed a five- point "framework" that involved Israel, the United States, and Egypt to try to advance Prime Minister Yitzhak Shamir's plan for elections in the West Bank and the Gaza Strip. Israel agreed in principle in November but attached two reservations: that the PLO not be involved in the naming of Palestinian delegates and that the discussions be limited to preparations for the elections.

In addition to relations with the West, Israel has sought to expand its economic relations, particularly, with both Third World countries and with Eastern Europe and the Soviet Union, and to influence the latter to allow increased emigration of Jews. The sharp upswing in Soviet Jewish immigration to Israel--approximately 2,000 persons in November 1989 and 3,700 in December, with a continued influx in mid-January 1990 at the rate of more than l,000 persons per week--led to an announcement that Israel would resettle 100,000 Soviet Jews over the following three years. The cost was estimated at US$2 billion, much of which Israel hoped to raise in the United States. This influx aroused considerable concern on the part of Palestinian Arabs, who feared many Soviet Jews would settle in the West Bank.

Israel's relations with neighboring states have been uneven. Egyptian president Anwar as Sadat's historic visit to Jerusalem in November 1977 led to the Camp David Accords in September 1978 and ultimately to the signing of a peace treaty and the return of the Sinai Peninsula to Egypt. In 1989 Egypt began to play an increasingly prominent role as mediator between Israel and the Palestinians, particularly as reflected in President Husni Mubarak's ten-point peace proposals in July. The PLO accepted the points in principle, and the Israel Labor Party considered them a viable basis for negotiations.

Tensions continued along Israel's northern border with Lebanon because of incursions into Israel by Palestinian guerrillas based in Lebanon. These raids led to Israel's invasion of Lebanon (known in Israel as Operation Peace for Galilee) in June 1982, the siege of Beirut, the Israeli occupation of southern Lebanon, and withdrawal to the armistice line in June 1985. As a result, relations with factions in Lebanon and relations with Syria remained tense in early 1990, whereas Israeli relations with Jordan had ended in cooperation agreements concerning the West Bank such agreements were canceled by King Hussein's disclaimer on July 31, 1989, of Jordanian involvement in the West Bank.

Israel's relationship with its neighbors must be understood in the context of its overriding concern for preserving its national security. Israel saw itself as existing alone, beleaguered in a sea of Arabs. Accordingly, it has developed various security principles: such as anticipating a potential extensive threat from every Arab state, needing strategic depth of terrain for defensive purposes, or, lacking that, needing an Israeli deterrent that could take a conventional or nuclear form, and the necessity to make clear to neighboring states, particularly Syria, actions that Israel would consider potential causes for war. Another security principle was Israeli autonomy in decision-making concerning military actions while the country concurrently relied on the United States for military matériel. (United States military 2000 aid to Israel averaged US$l.8 billion annually in the mid- and late 1980s other United States government aid from 1985 onward brought the total to more than US$3 billion annually).

Because of its national security concerns, the IDF, primarily a citizen army, has played a leading role in Israeli society. With exceptions granted to Orthodox individuals for religious reasons, men and women have an obligation to perform military service, a factor that has acted to equalize and educate Israel's heterogeneous Jewish population. Although Israel operates on the principle of civilian control of defense matters, a number of the country's leaders have risen to political prominence on retiring from the military, such as Moshe Dayan, Yitzhak Rabin, Ezer Weizman, and Ariel Sharon. The key national role of the IDF and its pursuit of the most up-to-date military matériel, although costly, have benefited the economy. Defense-related industries are a significant employer, and, through military equipment sales, also serve as a leading source of foreign currency. Israel has excelled in arms production and has developed weapons used by the United States and other countries.

The IDF has not only served in a traditional military capacity in the wars in which Israel has been engaged since 1948. Since 1967 it also has exercised military government functions in the West Bank and the Gaza Strip. This role has proved particularly onerous for Israeli citizen soldiers once the intifadah began in December 1987.

The intifadah has probably had a greater impact on the lives of both Palestinians and Israelis than any other event in recent years. For Palestinians in the West Bank and the Gaza Strip, the uprising has created a new younger generation of leadership, a sense of self-reliance, and an ability to transcend religious, political, economic, and social differences in forming a common front against the Israeli occupation. In so doing, Palestinians have organized themselves into local popular committees (coordinated at the top by the Unified National Leadership of the Uprising) to handle such matters as education, food cultivation and distribution, medical care, and communications. Committee membership remained secret, as such membership was declared a prison offense in August 1988. Observers have commented that the committees were reliably considered to include representatives of various political factions within the PLO and some of its more radical offshoots, as well as communists and members of the Muslim fundamentalist Islamic Resistance Movement, known as Hamas. Israeli authorities initially endorsed Hamas in the hope that it would draw Arabs from the PLO (Hamas was given time on Israeli television in the November 1988 elections), but as it became more powerful, especially in the Gaza Strip, Israel outlawed Hamas, Islamic Jihad (Holy War), and Hizballah (Party of God), which were radical Muslim groups, in June 1989, setting jail terms of ten years for members. The PLO itself had been banned earlier in the occupied territories.

Various restrictions and punishments have been imposed from time to time and in different locations on West Bank and Gaza Strip residents since the intifadah began. Among actions taken against Palestinians in the West Bank was the outlawing of professional unions of doctors, lawyers, and engineers in August 1988. Universities in the West Bank and the Gaza Strip have been closed since October 1987. Schools in the West Bank were closed for more than six months in 1988 and, after reopening in December 1988, were again closed one month later schools were open for only three months in 1989. Instruction in homes or elsewhere was punishable by imprisonment. Extended curfews have been instituted, often requiring people's confinement to their houses. (For example, the approximately 130,000 Palestinian inhabitants of Nabulus experienced an eleven-day curfew in February 1989, during which United Nations Relief and Works Agency for Palestine Refugees in the Near East trucks bearing food were forbidden to enter the city). Water, electricity, and telephone service have been cut, and periodically Palestinian workers have been refused permission to enter Israel to work. By the end of 1989, at least 244 houses had been destroyed, affecting almost 2,000 persons. Beatings and shootings had resulted in 795 deaths and more than 45,000 injuries by the end of 1989. Approximately 48,000 Palestinians had been arrested and imprisoned since the uprising began through December 1989. Administrative detention without charge, originally for a period of six months and increased in August 1989 to twelve months, was imposed on about 7,900 Palestinians, and 61 Palestinians had been deported from Israel by the end of 1989. These restrictions were documented in detail in the United States Department of State's Country Reports on Human Rights Practices and the statistics of Al Haq (Law in the Service of Man), a RamAllah-based human rights organization. Countermeasures instituted by Palestinians have included demonstrations, boycotts of Israeli products, refusal to pay taxes (resulting in the case of Bayt Sahur, near Bethlehem, in September 1989 of extended twenty-four- hour curfews and the seizure of property in lieu of taxes), strikes and intermittent closings of shops, stonethrowing, and some terrorist acts including the use of fire bombs, and the killing of about 150 Palestinians considered Israeli collaborators.

Both Palestinians and foreign observers saw the intifadah as having had a profound effect on the PLO. In the opinion of many observers, the PLO had previously sought to minimize the role of Palestinians in the occupied territories so as to maintain its own control of the Palestinian movement. The coordinated activities of the young Palestinian leadership in the West Bank and the Gaza Strip since the uprising have obliged the PLO to relinquish its sole leadership. The PLO has been compelled to support solutions for the Palestinian problem that it had previously opposed but which were favored by residents of the occupied territories, namely an international conference to resolve the Palestine issue and a two-state solution. The uprising brought pressure on the Palestine National Council, which included representatives of Palestinians throughout the world, to bury its differences and to provide psychological support to Palestinians within the occupied territories by announcing the creation of a Palestinian state in mid-November 1988.

The intifadah has also had a substantial impact on Israelis because of the escalation of violence. Israeli settlers in the West Bank have taken the law into their own hands on numerous occasions, shooting and killing Palestinians. In the course of the intifadah, 44 Israelis had been killed by the end of 1989, and, according to Israeli government statistics, more than 2,000 Israelis had been injured. The uprising has also affected Israeli Arabs, many of whom have experienced a greater sense of identity with their Palestinian brothers and sisters. Evidence is lacking, however, of acts of violence by Israeli Arabs against Israeli authorities, something that many Israelis had anticipated.

The cost to Israel of quelling the uprising has been calculated by the United States government at US$132 million per month, not counting the loss in revenues from production and from tourism--the latter dropped 40 percent but were beginning to rise again in late 1989. The violence has not occurred without protest by Israelis. Many of the soldiers of the IDF, for example, have found particularly distasteful the use of force on civilians, especially on young children, women, and the elderly, and have complained to government leaders such as Prime Minister Shamir. The liberal Israeli movement Peace Now organized a large-scale peace demonstration that involved Israelis and Palestinians as well as about 1,400 foreign peace activists on December 30, 1989, in Jerusalem more than 15,000 persons formed a human chain around the city.

Many Israelis have expressed concern ab 2000 bout the effects of the violence on Israel's democratic institutions as well as on Israel's image in the world community. A number of Israeli leaders have publicly advocated a political rather than a military settlement of the uprising. As early as the spring of 1988, a group of retired generals, primarily members of the Labor Party, organized the Council for Peace and Security, maintaining that continued occupation of the West Bank and the Gaza Strip was actually harmful to Israel's security, and that Israel should rely on the IDF rather than the occupied territories for its security. The Jaffee Center for Strategic Studies of Tel Aviv University, a think tank composed of high-level political and military figures, in a study conducted by Aryeh Shalev, retired former military governor of the West Bank, concluded in December 1989 that Israel's repressive measures had actually fueled the uprising. Among individuals who have spoken out are former Foreign Minister Abba Eban, who endorsed chief of staff Lieutenant General Dan Shomron's view that the intifadah cannot be solved "because it is a matter of nationalism." To this Eban added, "You cannot fight a people with an army." Eban maintained that the PLO could not endanger Israel because Israel had "540,000 soldiers, 3,800 tanks, 682 fighter-bombers, thousands of artillery units, and a remarkable electronic capacity." Observers have pointed out that Israel's launching on September 19, 1988, of the Ofeq-1 experimental satellite provided it with a military intelligence potential that reduced the need for territorial holdings. In September 1989, Israel launched Ofeq-2, a ballistic missile that further demonstrated Israel's military response capabilities.

Both Eban and Ezer Weizman, minister of science and technology in the 1988 National Unity Government, favored talking with the PLO, as did General Mordechai Gur, also a Labor cabinet member, former military intelligence chief General Yehoshafat Harkabi, and several other generals. The Jaffee Center for Strategic Studies, in its early March 1989 report, Israel's Options for Peace, supported talks with the PLO. In fact, informal contacts between Israelis and PLO members had already occurred, although such meetings were a criminal offense for Israelis. On February 23, 1989, PLO chief Yasir Arafat met in Cairo with fifteen Israeli journalists. In early March, several Knesset members met PLO officials in New York at a conference sponsored by Columbia University. In other instances, Egyptians, Americans, and West Bank Palestinians have served as intermediaries in bringing Israelis and PLO officials together. In October 1989, however, Abie Nathan, a leading Israeli peace activist, was sentenced to six months' imprisonment for meeting PLO members, and in early January 1990, Ezer Weizman was forced out of the inner cabinet for meeting with PLO figures. The families of Israeli prisoners of war, however, were authorized in December 1989 to contact the PLO to seek the prisoners' release.

In addition to the pressures exerted by the intifadah, the reason for the greater willingness to talk to the PLO has been a perception that the PLO has followed a more moderate policy than in the past. For example, in November 1988, Arafat explicitly met United States conditions for discussions with the PLO by announcing the acceptance of United Nations Security Council Resolutions 242 and 338, which indicated recognition of the State of Israel, and by renouncing the use of terrorism.

The majority of the government of Israel in January 1990, however, continued to oppose talks with the PLO. For example, on January 19, 1989, Minister of Defense Rabin proposed that Palestinians end the intifadah in exchange for an opportunity to elect local leaders who would negotiate with the Israeli government. The plan, which made no mention of the PLO, was presented to Faisal Husayni, head of the Arab Studies Center in Jerusalem and a West Bank Palestinian leader, just after his release from prison on January 28. Minister of Industry and Trade Sharon in February 1989 sharply denounced any talks with the PLO. In mid-April, Prime Minister Shamir stated that he would not withdraw Israeli troops from the West Bank and the Gaza Strip to facilitate free Palestinian elections in those areas, nor would he allow international observers of such elections. In late April, Rabin asserted that any PLO candidate in Palestinian elections would be imprisoned.

Despite such indications of an apparent negative attitude toward facilitating peace negotiations, on May 14, 1989, Shamir announced a twenty-point cabinet-approved peace plan, which he had aired privately with President George Bush during his May visit to Washington. The basic principles of the plan stated that Israel wished to continue the Camp David peace process it opposed the creation of an additional Palestinian state in the Gaza Strip or the West Bank (by implication Jordan was considered already to be a Palestinian state) it would not negotiate with the PLO and there would be "no change in the status of Judea, Samaria, and the Gaza district, unless in accord with the basic program of the government." Israel proposed free elections in the occupied territories, which were to be preceded by a "calming of the violence" (the plan did not specifically set forth an end to the uprising as a precondition for elections, as Sharon had wished) elections were to choose representatives to negotiate the interim stage of self-rule, which was set at five years to test coexistence and cooperation. No later than three years after the interim period began, negotiations were to start for a final solution negotiations for the first stage were to be between Israelis and Palestinians, with Jordan and Egypt participating if they wished for the second stage, Jordan would also participate and Egypt if it desired. In the interim period, Israel would be responsible for security, foreign affairs, and matters relating to Israeli citizens in the occupied territories. The plan made no mention of voting rights for the approximately 140,000 Arab residents of East Jerusalem, which Israel occupied in 1967. In countering Israeli criticism of the plan, Shamir restated his commitment not to yield "an inch of territory."

Such an intransigent position also characterized those Israeli West Bank settlers whose vigilante tactics have created problems not only for Palestinians but also for the IDF in the occupied territories. In late May 1989, West Bank military commander Major General Amran Mitzna begged a visiting Knesset committee to help "stop the settlers' incitement against the Israel Defense Forces." The settlers were provoked by the army's interference with their "reprisal raids" on Palestinians. The substantial reduction in IDF forces in the West Bank, following a January 1989 reduction in the defense appropriation reduction (variously reported as US$67 or US$165 million) was followed by increased settler violence. Concurrently, the IDF has reduced the number of days of annual service to be performed by reservists from sixty (the number set after the uprising began--it was thirty before the intifadah) to forty-five, as a direct economy measure and to minimize the impact on the Israeli economy of lengthy reserve service.

The serious problems facing the Israeli economy have fallen to Minister of Finance Shimon Peres, who, as Labor Party head, served as prime minister in the previous National Unity Government. The need to remedy the serious deficits incurred by the kibbutzim and the industries operated by the Histadrut, both areas of the economy associated with the Labor Party, were considered a major reason for Peres's having been named minister of finance in the new 1988 government. Observers have commented that Peres made a slow start in addressing the rising inflation rate, which was nearing 23 percent in 1989 the growing unemployment, which amounted to more than 9 percent and the budget deficits. In late December, Peres announced a 5 percent devaluation of the new Israeli shekel (for value of the shekel--see Glossary) and a week later, when unveiling the new budget on January 1, a further 8 percent devaluation. Budget cuts of US$550 million were made in addition to government savings of US$220 million by reducing food and gasoline subsidies. The government also announced plans to dismiss thousands of civil servants and to cut cost-of-living increases for all workers. These components were collectively designed to revive the economy and to stimulate exports. The Israeli public, however, was understandably critical of these harsh measures, which made Peres personally unpopular and decreased the possibility of his being able to force an early election to overturn the Likud-led National Unity Government.

Israel in January 1990, therefore, faced a difficult future. Economically, the country was undergoing stringent budgetary limitations that affected all Israelis. Politically and militarily, it confronted the ongoing intifadah and the question of its willingness to talk to the PLO and to consider giving up land for peace, or its continued use of the IDF to repress the Palestinian uprising in the occupied territories. Militarily, it faced a possible threat from its enemy Syria as well as from the battle- tested army of Iraq. Politically, Israel was challenged by the growing strength of right-wing religious and religio-nationalist parties and the need for electoral reform to create a more effective system of government. Socially and religiously, the country faced the issue of reconciling the views of Orthodox Jews with those of secular Jews, considered by most observers as a more serious problem than differences between Oriental Jews and Ashkenazim. Any Israeli government confronting such challenges was indeed called upon to exercise the proverbial wisdom of Solomon.

January 25, 1990

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The major event since the above was written was the fall on March 15 of the government of Likud prime minister Yitzhak Shamir on a no-confidence vote over his refusal to accept the United States proposal for discussions between Israelis and Palestinians to initiate steps toward an Israeli-Arab peace plan. (Minister of Commerce and Industry Ariel Sharon had resigned from the coalition government on February 18 after the Likud central committee moved toward approving such a dialogue). The fall of the government, which was the first time that the Knesset had dissolved a government, was preceded by Shamir's firing of Deputy Prime Minister Shimon Peres on March 13, leading to the resignation of all other Labor Party ministers in the National Unity Government. The no-confidence vote resulted from a last-minute decision by Shas, a small ultra-Orthodox Sephardic party, to abstain from voting, giving Labor and its allies a sixty to fifty-five majority in the Knesset. On March 20, President Chaim Herzog asked Peres to form a government despite five-week efforts to achieve a coalition, Peres notified Herzog on April 26 that he was unable to do so. This process again was a first--the first time in forty-two years that a prime minister candidate designated by a president had failed to put together a government. On April 27 the mandate for forming a government was given to Shamir, who as of early May was still negotiating. Should this attempt fail, new elections will be required, but the composition of the Knesset will probably not change significantly in such an election.

Meanwhile, the negotiations conducted by both major parties involved bargaining and significant material and policy commitments to tiny fringe parties, particularly the religious parties, that were out of proportion to their strength. As a result, Israelis have become increasingly disenchanted with their electoral system. On April 7 a demonstration for electoral reform drew approximately 100,000 Israelis, the largest number since the 1982 demonstration protesting Israel's invasion of Lebanon. More than 70,000 people signed a petition, endorsed by President Herzog, calling for the direct election of the prime minister and members of the Knesset so as to eliminate the disproportionate influence of small parties. Moreover, on April 9 an Israeli public opinion poll revealed that 80 percent of Israelis favored changing the electoral system.

The situation was further complicated by the Israeli response to Secretary of State Baker's statement on March 1 that the United States would back Israel's request for a US$400 million loan to construct housing for Soviet Jewish immigrants only if Israel stopped establishing settlements in the West Bank and the Gaza Strip. The Israeli government stated that this condition was the first time that the United States government had linked American aid to the way that Israel spent its own money. In a March 3 news conference, President Bush included East Jerusalem in the category of territory occupied by Israel, saying that the United States government opposed new Jewish immigrants being settled there (an estimated 115,000 Jews and 140,000 Palestinian Arabs lived in East Jerusalem as of March). Prime Minister Shamir announced on March 5 that new Jewish neighborhoods of East Jerusalem would be expanded as rapidly as possible to settle Soviet Jews--7,300 Soviet Jews arrived in March and 10,500 in April.

On April 18, Shamir appointed Michael Dekel, a Likud advocate of settlements, to oversee the groundbreaking for four new settlements in the occupied territories of the West Bank and the Gaza Strip and to try to buy residential property in the Armenian Quarter of the Old City of Jerusalem for Jewish occupancy. This action was made possible by the absence from the government of Labor Party ministers, who had been opposing various settlement activities. Government sponsorship of Jewish settlement in Jerusalem, although initially denied, included a grant of US$1.8 million to a group of 150 persons, consisting of Jewish religious students and their families, to rent through a third party St. John's Hospice in the Christian Quarter of the Old City, which they occupied on April 12, the eve of Good Friday. This incident caused among uproar by Christian Palestinians and led to the protest closing of Christian churches in Jerusalem for one day on April 27- -the first time in 800 years that the Church of the Holy Sepulcher had been closed. Jerusalem Mayor Teddy Kollek testified in court opposing the settlement on the grounds that it would damage Israel's international reputation, harm public order in the Christian Quarter, and disrupt the delicate and established ethnic balance of Jerusalem. The Supreme Court announced on April 26 that it upheld the eviction of the settlers by May 1.

In other developments, the European Community threatened sanctions against Israel unless the government allowed the reopening of Palestinian institutions of higher education in the West Bank and the Gaza Strip, which had been closed since October 1987. In reply, Israel stated on February 26 that it would allow sixteen community colleges and vocational institutions, serving approximately 18,000 Palestinian students, to reopen in stages on unspecified dates.

Iraq's president Saddam Husayn, who was extremely fearful of an Israeli strike against Iraq, on April 2 threatened that Iraq would use chemical weapons against Israel if it attacked. This threat outraged the world community and was followed on April 3 by Israel's launch of a new three-stage rocket earth satellite into a surveillance orbit.

Meanwhile, the intifadah continued. The Palestine Center for Human Rights reported on March 19 that 878 Palestinian fatalities had occurred up to that date. The Israeli human rights body stated on April 3 that thirty Palestinians had been killed by Israeli army gunfire in the first quarter of 1990, whereas Palestinians had killed thirty-five of their number as suspected Israeli collaborators over the same period. Israel announced on February 18 a 15 percent reduction in the defense budget for 1990- 91, together with a reduced number of service days f604 for reservists, caused by the financial costs of the uprising. No end to the intifadah appeared in sight, with well-informed Israeli sources suggesting that the uprising had strengthened the convictions of Israelis on both sides: those favoring territorial maximalism and those advocating compromise. The difference was thought to be a greater realism, with maximalists feeling that the territories could be retained only by removing a number of Palestinians from the West Bank and the Gaza Strip, and compromisers recognizing that negotiations with the PLO would require significant concessions.

May 2, 1990
Helen Chapin Metz

Data as of December 1988