When Shimon Peres became prime minister of Israel on September 14, 1984, his country was weary of the bloody Lebanese quagmire and disoriented by an inflation rapidly spiraling out of control. Just over two years later, Israel has found imperfect but at least temporarily acceptable solutions for those problems, and Peres’ term in office has ushered in what could become an extended period of government by coalition and compromise.

Seven years under Menachem Begin and Yitzhak Shamir, the prime ministers of the hard-line Likud bloc, had unexpectedly produced the first formal peace treaty with an Arab adversary. Israel’s most crucial foreign polícy relationship, the unwritten alliance linking Jerusalem and Washington, was healing well after being battered by the controversies surrounding the 1982 invasion of Lebanon. Shamir and his defense minister, Moshe Arens, had successfully restored a civil tone to Israel’s dialogue with the Reagan Administration, as Jerusalem and Washington abandoned confrontation over Lebanon in favor of policy coordination—though success in breeching the Lebanese impasse remained hopelessly elusive. Shamir had persuaded President Reagan to launch a meaningful U.S.-Israeli strategic cooperation that was low-key, practical and professional, shunning the bombast and inflated pretensions of the abortive 1981 effort pushed by Begin and his defense minister, Ariel Sharon.

But by the time Israelis voted for a new Knesset on July 23, 1984, those Likud accomplishments were dwarfed by the inflationary tornado and by a disillusioned sense of helplessness about Israel’s stalemated military position in Lebanon. The Israel Labor Party expected to capitalize on that mood, but it was sorely disappointed. Israel’s electorate wanted new leadership in Jerusalem, but even more strongly it wanted an end to squabbling among political leaders, who seemed to put party interests ahead of solving urgent national crises. Polls taken during the final weeks of the 1984 campaign revealed the true mood of the voters; an overwhelming majority preferred a broad coalition government that would include both Likud and Labor. When the electoral results were in, neither Peres, whose Labor Party won the plurality, nor Shamir of Likud could put together the 61-vote majority necessary to form a government. They joined forces in a coalition cabinet, but with great reluctance and only for lack of any alternative.

So was born that strange “Government of National Unity” which has now ruled Israel for more than two years and could well endure for its planned duration, 50 months, until the next regularly scheduled election in 1988. Peres and Shamir added a unique feature to this coalition: a personal agreement to share the prime and foreign ministries between them, with Peres as prime minister and Shamir as foreign minister for two years, and a reversal of roles for the second two years.

Thus Shimon Peres, having led his party three times in national elections since 1977, and having twice seen commanding leads melt away during the campaign, finally achieved the office toward which his entire career in politics and government had pointed. The prize, however, hardly looked promising when it finally came to him.


To assess Peres’ performance as prime minister it is essential first to understand that this was not a “Peres government.” Peres had received no electoral mandate for his party’s program nor indeed for his own political priorities. He was leader, temporarily, of a broad coalition which enjoyed the support of more than 85 of the Knesset’s 120 members, bound together by a detailed contract between Labor and Likud. Each bloc held 12 portfolios in the cabinet of 25 ministers, with the extra cabinet seat in the hands of the veteran National Religious Party leader, Joseph Burg, who had over his long career worked with both Labor and Likud. Even more constraining was the so-called inner cabinet of five members from Labor and five from Likud, empowered to decide all major issues of foreign policy and national security. No inner cabinet decision could be appealed to the full cabinet without the mutual agreement of Peres and Shamir. In short, the structure of the government was designed to carry out the mandate of the Israeli people for government by consensus.

By the time Peres took office, consensus existed on the two most pressing items of the national agenda: the economic crisis and the need to disengage from Lebanon. Indeed, the 1984 electoral campaign had been remarkably civil, especially by comparison with Begin’s fiery attacks against Peres in 1981. Labor chose not to rub much salt into the wounds inflicted on Likud by the continuing mess in Lebanon. Both parties essentially advocated the same line: withdrawal of Israeli forces as soon as “adequate security arrangements” could be worked out for southern Lebanon. Although Labor had tried to pin the blame for the escalating economic crisis on disastrous Likud policy decisions of previous years-where it belonged-Shamir had in fact already adopted the cause of austerity and belt tightening during his year-long first term as prime minister in 1983-1984, albeit with little success.

There was little dispute, therefore, between Shamir and Peres over the need for budget cutting, credit restraint, and general austerity to curtail inflation and halt the hemorrhage of Israel’s foreign exchange reserves. Peres had based his campaign on Labor’s greater expertise and experience in government, saying in effect, “we know how to govern, they only know how to talk.” However, once the government was formed, negotiations over the allocation of portfolios ended with Likud ministers holding the preeminently powerful Ministry of Finance plus most other key economic ministries, including Industry, Housing, Transport and Labor/Social Welfare. Furthermore, except for their general agreement on an overall austerity, Labor and Likud differed markedly on economic philosophy, on proper burden sharing between wage earners and business enterprises, on acceptable levels of unemployment, on the role of the public sector in Israel’s semisocialist economic system, and so on. These philosophical differences would be reinforced by the clamoring for relief of various interest groups with powerful cabinet patrons, such as the school teachers.

The coalition’s leaders also agreed on the need to persuade Egyptian President Hosni Mubarak that the Israeli-Egyptian peace treaty should be more completely implemented by “normalizing” commercial relations, cultural exchanges, tourism and diplomatic ties. This agreed principle concealed, however, a crucial difference between Peres and Shamir, centering on the festering dispute over the thorny Taba controversy, the question of sovereignty over a small strip of beach near Eilat. Shamir believed that Egypt should first fulfill all its treaty obligations before Israel accommodated Mubarak’s political needs and submitted this dispute to international arbitration. Peres was eager to resolve the matter as quickly as possible, as a key to warmer relations with Cairo, and in order to give the Israeli public a renewed sense that exchanging territory for peace was worth the sacrifice.

On the broader question of renewing the Israeli-Arab “peace process,” the coalition’s program contained much “least common denominator” language: keeping the pursuit of peace “at the top of the agenda”; trying to advance the peace process “in accordance with the Camp David agreement” of 1978, and seeking to renew negotiations to establish “full autonomy for the Arab inhabitants of Judea, Samaria [the West Bank] and Gaza”; calling on Jordan to join in peace negotiations and committing the government to “take into consideration any proposals which Jordan might raise in those negotiations.” Labor and Likud agreed to oppose any independent Palestinian state and rejected any idea of negotiating with the Palestine Liberation Organization (PLO). Moreover, the coalition agreement specified that there would be no change in sovereignty over Judea, Samaria or Gaza during the term of the national unity government unless agreed to by both Labor and Likud, thus effectively blocking both Likud’s “annexationist” impulses and any possible “territorial compromise” ideas which Labor might wish to pursue.

These were the programmatic constraints on the prime minister’s freedom of action. But complicated intraparty rivalries threatened to make leadership of this cumbersome coalition even more taxing. Although he was finally the undisputed leader of the Labor Party, Peres nevertheless had to handle with kid gloves his Labor colleague at the powerful Defense Ministry, former prime minister and longtime Peres antagonist, Yitzhak Rabin. Rabin remained bitter; he believed that Peres had undermined his authority between 1973 and 1977 when their cabinet roles had been reversed. Moreover, the coalition agreement assured that Rabin would retain the second most powerful post in the government, minister of defense, for the full term of the coalition cabinet, whereas Peres could count on no more than two years as prime minister.

Shamir was Likud’s leader but had never been fully anointed as Menachem Begin’s heir to the Herut Party, the major component of the Likud bloc. He faced a growing challenge for the Herut leadership from Deputy Prime Minister David Levy and Ariel Sharon (named minister of industry and commerce in the national unity government), plus chronic obstreperousness from Minister of Finance Yitzhak Modai, leader of the Liberal Party, Herut’s junior partner in Likud.

Neither Peres nor Shamir could easily bring their party colleagues to support even those policies on which they themselves agreed. Economic issues were especially thorny; Shamir usually left to Peres the often excruciating task of rounding up support-even from Likud cabinet members-for Finance Minister Modai’s painful but necessary budget-slashing proposals.

Finally, looming over every major issue was the shadow of the next election. Labor and Likud had joined forces reluctantly, out of sheer necessity. At the start, neither party believed this unnatural marriage would survive two years, until the date set for the “rotation” between Peres and Shamir, much less for its full four-year term. Assuming that some crisis would provoke early elections, most ministers were anxious to cast blame on their new coalition partners for painful decisions, especially with regard to the economy and Lebanon. Each party resented having to hedge its own programs and ideological pronouncements within the narrow middle ground of the coalition agreement. Neither could turn its attention for long from the public opinion polls or its calculations of future electoral advantage. Few politicians could long put aside party competition within the coalition framework, for few saw the government as anything but a temporary hiatus between elections. It fell largely to the prime minister to create a sense of bipartisan national purpose for his government; this proved to be his most difficult challenge.

Thus, the Government of National Unity might easily have become a “Government of National Impasse.” That it did not was largely due to Shimon Peres’ extraordinary talent for conciliation and persuasion, as well as his dogged tenacity, though Yitzhak Shamir’s stolid sense of responsibility and his determination to resist political provocation also played an important part.

Against this backdrop of crisis and constraint, Peres set forth his goals as prime minister and pursued them with unusual determination and rigor. They were: first, to withdraw Israeli forces from Lebanon as quickly as possible in whatever fashion would best safeguard the security of Israel’s northern border region; second, to stem runaway inflation, rebuild foreign exchange reserves and revive the moribund economy; third, to “normalize” relations with Egypt; fourth, to repair Israel’s tarnished public image in Europe and elsewhere abroad; fifth, to create a more tolerant, less shrill domestic political climate after years of ugly confrontation and divisive rhetoric that had polarized Israeli society; and sixth, to revive the “peace process” by reaching out, especially to Jordan and also to Egypt, to lay the groundwork for-and if possible to launch-negotiations, all in close coordination with the United States. Peres also sought to ease the harshness of the Israeli administration over the Palestinian inhabitants of the occupied territories, devolve some greater responsibility upon them and improve their “quality of life.”

Peres’ agenda also had a political and a personal goal. He sought to regain for his Labor Party enough voters who had drifted away in recent years for a large plurality in the next election, so as to then be able to form a true Labor government, no longer dependent on the hobbling alliance with Likud. He was also determined to reverse his own public image as devious and unreliable, an image that had dogged his political path in recent years, fed by Rabin’s animus and Likud slanders. Not only did he seek to renew his personal popularity, which had ebbed badly since his defeat in the 1977 elections, he also sought to reaffirm his credibility as a statesman and national leader.

It was an ambitious agenda, and he had two years or less to achieve it.


As soon as Peres was sworn in as prime minister on September 14, 1984, he called publicly on King Hussein of Jordan to negotiate peace with Israel. He also pledged that Israel would withdraw from Lebanon “in a matter of several months” and launched emergency stopgap measures to confront the economic crisis: a nine-percent devaluation of the shekel and intentions to carry out a huge cut in the national budget. Within ten days the cabinet imposed new taxes on luxury goods and business assets, while Finance Minister Modai announced his intention to slash subsidies for basic food items and fuel. A six-month ban on 50 luxury imports followed a few days later.

Peres then turned to preparing for his first trip to Washington as prime minister. He was by now acutely aware that Israel needed additional psychological and financial backing from the Reagan Administration to prevent a crisis of confidence in international financial circles. But he was on notice from Washington that he would have to show a credible plan for deep budget cuts and other needed reforms before emergency U.S. aid could be considered. He succeeded beyond even his own expectations. During three days in Washington in early October, symbolically flanked by his new coalition partner, Vice Prime Minister and Foreign Minister Shamir, Peres delivered a masterful analysis of Israel’s dilemmas and his government’s intentions. He impressed President Reagan, Secretary of State George Shultz, their top advisers, leaders of Congress and influential journalists with the seriousness with which Israel was now tackling its problems. By the end of his visit, personal rapport with top U.S. leaders had been strongly reinforced, American public support for Israel augmented, and the vital U.S.-Israeli relationship fully restored to a high degree of intimacy and trust.

Peres furthermore obtained the assurance he sought, that the United States would stand ready to provide emergency financial support should some of the drastic economic measures he contemplated bring dangerous pressure on Israel’s financial reserves. The wide-ranging Washington talks also produced an impressive degree of strategic and tactical agreement on future approaches to Lebanon, Egypt, the Arab-Israeli peace process and U.S.-Israeli military cooperation. The personal rapport Peres achieved with Reagan and Shultz, in particular, would carry him through some rough waters later in his term of office.


Throughout Peres’ term, the cabinet’s domestic agenda was dominated by the imperative of facing up to long overdue economic decisions. The nation had lived too long too far beyond its means. With almost no real economic growth, a staggering tax and defense burden, and growing dependency on U.S. aid, prices and wages had continued to rise, driving each other steadily higher under Israel’s highly indexed, linked and unionized economic structure. The shadowy “black economy” flourished. Stock market speculation and government inattention had produced an unprecedented crisis in the banking system in September 1983. An austerity program launched in October by Shamir’s cabinet had foundered by early 1984, a victim of political pressures.

By October 1984, inflation was running at an annual rate of more than 1,200 percent, fueled by a budget deficit in excess of 15 percent. Foreign exchange reserves were ebbing away rapidly as Israelis lost confidence in their own currency, exchanged their shekels for dollars and amassed luxury consumer goods, mostly imported, no matter what the nominal cost in debased shekels.

Emboldened by the assurances Peres obtained in Washington the cabinet adopted an emergency economic package on October 23, including a three-month freeze on wages and prices, and called for sharp cuts in public-sector jobs. With that breathing spell achieved, Modai wanted to slash wages and profits by administrative decree and then push tight legislative constraints through the Knesset. Peres, true to his personal proclivities and sensitive to the Labor Party’s key support constituency, the powerful Histadrut labor federation, opted for voluntary cooperation. He gathered Israel’s government, labor and business leaders in prolonged negotiating sessions to hammer out a broad “package deal” to replace the temporary program before it expired. To overcome sharp personality clashes with the brilliant but volatile and autocratic Modai, Peres himself devoted endless days and nights to cajoling, lobbying and wearing down the disputing interests.

Never before had an Israeli prime minister become so immersed in economic policy making. No economist, Peres nevertheless mastered the technical issues sufficiently to win the cabinet’s support despite many members’ misgivings, making good use of friendly advice from Washington not to falter. Agreement was finally reached in late January 1985 on a broad package, set to last for eight months, which included extended price and wage controls, elimination of most subsidies, a 10-percent cut in the overall government budget, harsh credit restraints, and a de facto weakening of wage-price linkage. Other measures to stem the outflow of foreign currency were promptly enacted by the cabinet.

Peres had used his leadership skills to parley the crisis into a national consensus by persuasion rather than compulsion. The program was not as drastic as economic experts in both Jerusalem and Washington had urged, but as a political achievement it was stunning.

Unfortunately, during the first half of 1985 the package slowly unraveled. The Achilles’ heel was the budget; deep cuts approved reluctantly by the cabinet were only partially implemented. Government monitoring of price controls proved flawed. Inflation, which had almost been stopped in its tracks by the wage-price freeze, began to accelerate again. Workers’ wages were easier to freeze, and indeed to slash in real terms, than profits were to control, civil servants to dismiss or government budgets to monitor. Some public confidence had been restored, but it proved fragile. From February on, impending nationwide elections for the leadership of the Histadrut, set for early May, cast a lengthening shadow. Israel Kessar, the canny new Histadrut leader, had agreed to remarkable reductions in workers’ real income in the January “package deal.” He could not be pushed further until after May without jeopardizing Labor’s crucial predominance in the Histadrut, and Peres was acutely conscious of this political constraint. Consequently, Modai’s proposals for further tightening of the austerity noose, for example on remaining subsidies, fell upon largely barren ground among Peres and his Labor Party advisers. Revisions in the crumbling package were negotiated in late March and the budget was further pared down-on paper-but the erosion continued. However, when Kessar won nearly 70 percent of the Histadrut vote on May 13, Peres plunged back into the economic fray.

By late June, the “package deal” had nearly collapsed. Unofficial price hikes and under-the-table salary increases were rampant throughout the economy and inflation was rising rapidly. All over the country, workers were striking for wage relief and manufacturers were demanding price increases to compensate for rising costs. Government budget cuts remained unrealized. Peres concluded that there was now no alternative but to swallow the bitter medicine being pressed on him by the Finance Ministry, strongly seconded by U.S. Secretary of State Shultz’ two outside economic advisers on the Israeli economy, Herbert Stein and Stanley Fischer. In marathon cabinet sessions on June 30 and July 1, Peres pushed through a sweeping plan of economic emergency measures for renewed austerity, uncharacteristically cracking the political whip over other Labor Party ministers who opposed the new emergency regulations by threatening to resign if the plan were rejected. Eventually only seven Likud ministers opposed the program’s adoption and the Knesset endorsed it overwhelmingly the following day.

This was the turning point for the Israeli economy. The combination of measures included not only deep spending cuts, a renewed wage-price freeze, new special taxes, public-sector layoffs and elimination of certain subsidies that had wormed their way back into a prominent place in the budget deficit, but, significantly, a devaluation of the shekel by 18.8 percent. This was joined with a firm decision to freeze the exchange rate for the foreseeable future and to cut real wages deeply by suspending the linkage in wage contracts between the cost-of-living index and wage levels. Workers were not to be compensated for the one-time immediate jump in prices produced by the large currency devaluation and by elimination of subsidies. The immediate effect was a nearly 25-percent slash in real salaries, in a country where average take-home pay ranges from $400 to $800 per month-bitter medicine for all wage earners and especially for Labor’s trade union supporters.

=Israeli and American economists, journalists, and officials generally applauded Peres’ leadership and the cabinet’s belated courage. Israeli society, however, erupted with angry demonstrations, general strikes and ideological debate over the cabinet’s use of emergency powers. Television technicians even went on strike to prevent Peres from appearing before the nation to explain the emergency measures. Modai’s Likud colleagues castigated his role. Peres stood firm. He gave just enough ground to the Histadrut on technicalities to allow some face saving for Kessar, but he withstood the pressure. By early fall it became clear that the medicine was working; inflation was again halted, and this time it would continue to ebb until the cost-of-living index actually fell briefly for the first time in decades. The economy slipped into a deepening recession and unemployment rose, but only moderately, and productivity began to increase, again a near-forgotten phenomenon in Israel. Exports surged, imports shrunk. A new shekel, valued at 1,000 of the old, appeared to symbolize the economy’s new-found stability. Confidence slowly returned. Israelis sighed, but mostly they did so with relief that the inflationary beast had finally been caged.

The second year of Peres’ term, 1986, passed without major economic backsliding. However, budget deficits remained too high and more cuts had to be made; defense spending has now been slashed to levels that Defense Minister Rabin and other experts believe may erode Israel’s long-term security. Medical services and education have been severely affected; a prolonged nurses’ strike produced painful hospital scenes for weeks in the late summer and early fall of 1986. By the end of 1986, inflation had seemingly settled at about 25 percent annually, but inflationary pressures still lurked menacingly nearby. Peres and his colleagues had won a major economic battle, but the war was far from over.

Israel’s financial reserves are again healthy, in part as a result of $1.5 billion in emergency U.S. aid disbursed during 1985 and 1986, but exports have not grown rapidly enough. The economy as a whole has not yet begun to grow significantly, and until healthy growth is restored no Israeli leader can be confident about the future. Nonetheless, Peres, Shamir, Modai, Kessar and their colleagues in the private sector achieved something akin to a miracle: halting runaway inflation by wholly democratic means. It was another demonstration that Israelis are at their best at moments of real crisis.

One should not leave the story of the economic turnaround without some words about the U.S. role. It was, as Peres has acknowledged, crucial. It hinged on a fortuity: George Shultz is not only well disposed toward Israel and its current leaders but is also a distinguished economist. Once he and President Reagan ascertained that Peres meant to attack the economic crisis head on, the United States gave both political support and good professional counsel, as a friend, not as a creditor. Shultz formed an expert advisory group, led by Professor Stein, former chairman of the Council of Economic Advisors, to help him advise Peres and, incidentally, to monitor progress in the implementation of the Israeli program. An Israeli request for emergency aid was favorably received, “in principle,” after Peres’ initial trip to Washington in October 1984, and a financial safety net was put in place, to be used if needed. But the Administration did not formally seek emergency funds from Congress until several months had elapsed.

Meanwhile, Shultz and his colleagues delicately dangled the aid “carrot” before the Israeli cabinet, garnishing it with sound, nonthreatening economic advice. Since that counsel closely paralleled the views of Modai, and of Peres’ own outside economic advisers, the influence of the United States served to strengthen the effort of Modai and Peres to press difficult decisions on their reluctant cabinet associates. Thus no formal “conditionally” was ever sought or imposed. This approach largely disarmed nationalist critics of “U.S. pressure.” Congress and the Administration managed to cooperate unusually well, since congressional friends of Israel respected Shultz’ approach and refrained from undercutting it by voting the aid prematurely. Yet the aid flowed when it was needed. In retrospect, these negotiations over emergency aid to Israel in 1984-85 provide an admirable model for the constructive use of U.S. assistance to an economically embattled, friendly democracy.


In parallel with the emergency repair of the Israeli economy, the coalition government faced the immediate security problem of Lebanon. Defense Minister Rabin, charged with extricating Israel from the Lebanese maze, launched with Peres’ support a subtle political strategy to withdraw Israel’s forces without giving Likud hard-liners any excuse to accuse him of “abandoning Israel’s security gains,” achieved at such high cost. The problem was delicate. After all, those Likud ministers who had launched the Lebanon operation, except for the retired Menachem Begin, were all still members of the cabinet. Though most by now had concluded that withdrawal was inevitable, they were not ready to acknowledge that all of Israel’s potential political and security gains had evaporated. Since the eventual withdrawal decision would come before the inner cabinet, half of whose members were Likud ministers, some among them had to be won over. It took Rabin and Peres exactly four months.

First they probed Syrian intentions publicly and privately, with the help of American intermediaries, only to find no willingness in Damascus to accede to any security arrangements in southern Lebanon that might reassure Israel about its northern border. Then, utilizing U.N. mediators, secret channels to some Lebanese leaders, and U.S. diplomatic support, the Israelis sought to negotiate security and withdrawal arrangements with the government of Lebanon.

After many false starts, Lebanese and Israeli military delegations finally convened under U.N. sponsorship at Naqoura near the Israeli-Lebanese border on November 8. The talks sputtered on and off until December 20 when they were adjourned “for Christmas,” to reconvene only once briefly thereafter. President Amin Gemayel’s government in Beirut was by that point too weakened to risk agreeing to any formula not endorsed by Damascus, even though Israel’s negotiating goals were much more modest than those embodied in the abortive Israeli-Lebanese agreement of May 17, 1983, an agreement eventually abrogated by Beirut under unremitting Syrian pressure.

These diplomatic efforts were all fruitless, but they served Rabin’s political strategy well. Bold public statements by key cabinet members throughout the autumn had proclaimed Israel’s determination to remain in Lebanon until “adequate security arrangements” had been achieved. Yet by January 14, 1985, when Rabin presented to the inner cabinet a three-stage plan for unilateral withdrawal, two of the five Likud ministers were now ready to join their five Labor colleagues to approve it. All other avenues had been thoroughly explored by then, in vain. The time had come to face the truth, and as a result of Rabin’s skillful tactics, Labor and Likud stood together to swallow this bitter pill. Neither party sought to gain partisan political advantage.

Nearly five months elapsed before the end of the withdrawal program. Israeli forces slowly leapfrogged south through an increasingly hostile Shia Muslim population, suffering daily casualties from roadside bombs, ambushes, suicide car bombers and rocket attacks. The Israelis, always watchful of Syrian intentions, attempted an orderly withdrawal, hoping to induce President Gemayel’s army or Druze and Shia Amal militia forces to establish security zones in their wake. The situation became more chaotic as the Lebanese finally realized that the Israelis were truly leaving. Some who had cooperated with the Israel Defense Forces were brutally assassinated-in Sidon for example-as soon as the Israeli forces withdrew. Radical Shia and Palestinian youths became increasingly emboldened to mount ambushes on Israeli patrols. Retaliatory operations by Israeli forces against those villages harboring terrorists only spawned more hatred. By the day in early June 1985 when the last formal military units crossed back onto Israeli soil at the “good fence” at Metulla, almost exactly three years after Begin and Sharon had launched “Operation Peace for Galilee,” over 650 Israeli soldiers had died in Lebanon, and over 3,000 had been wounded.

For a time, southern Lebanon remained relatively quiet, policed by a friendly militia, General Antoine Lahad’s “South Lebanese Army,” with substantial Israeli advice and material support. The rest of Lebanon slowly collapsed into near anarchy. Yet by late 1986 even the “security zone” near the Israeli-Lebanese border was again showing signs of heating up. Moreover, the single clear Israeli achievement of the war, the expulsion of Yasir Arafat’s PLO fighters, was short-lived. Ironically, by the time Shamir regained the office of prime minister late in 1986, Arafat’s PLO cadres were back in Lebanon by the thousands, struggling with increasing success to reestablish a secure base of operations in the face of violent opposition from Amal and other Syrian allies within Lebanon.

But while Lebanon remains a dangerous, ungovernable neighbor for Israel, it is no longer a political issue or a subject for much debate. The Peres government finally succeeded in removing Lebanon from the national agenda.


Egypt and Israel have been at peace since 1979, but the relationship has remained wary and cool. Egyptian President Anwar al-Sadat met for the last time with Begin in Alexandria in August 1981, a few weeks before Sadat’s assassination. Since then, no Israeli prime minister had managed to arrange a face-to-face encounter with Sadat’s successor, Hosni Mubarak, until Peres culminated a two-year courtship, finally meeting Mubarak in Cairo on September 11, 1986. The Egyptian embassy in Tel Aviv had remained, since 1982, under the direction of Muhammed Bassiuny, not an ambassador but rather an able chargé d’affaires. Popular as he became with Israeli officials, his lesser rank symbolized the cold character of the peace, as did the absence of trade, of a regular flow of Egyptian tourists to Israel, and of anything but vituperation about Israel in the Cairo press.

Peres believed it essential to thaw this chill before launching any negotiations with Jordan and the Palestinians. He understood that a substantial part of the Israeli public had soured on the idea of making further painful territorial concessions for peace, believing that Israel had never received “real peace” from Egypt despite the return of all of Sinai. Peacemaking had to become a popular cause again in Israel, if it were to have any chance of success with Jordan, and Egypt was the first hurdle on such a course. Peres began immediately to bombard Mubarak with messages, signals, foreign intermediaries and Israeli emissaries to drive home this point. Mubarak hesitated, pulled to and fro by contradictory advice.

Israel’s occupation of Lebanon remained a serious political roadblock until the troop withdrawal in June 1985. Israeli acts of retaliation following terrorist raids, such as its bombing of the PLO headquarters in Tunisia on October 1, 1985, frequently intervened to blight promising initiatives. Egypt remained frustrated by its inability to regain its accustomed leadership role in Arab affairs since making peace with Israel. Avoiding any more than minimal association with an Israel engaged in active conflict with other Arabs seemed the prudent course to Mubarak’s counselors. And always there was Taba.

Taba beach, a few hundred meters of sand at the border south of Eilat, remained disputed territory when the Israeli-Egyptian peace treaty was signed. From a minor annoyance it had grown into the major stumbling block in the way of improved relations. Exaggerated publicity for the issue in Egypt had eventually made Taba into a symbol of “Israeli intransigence.” Negotiations took place sporadically from 1979 on, without result, with Egypt demanding binding international arbitration of the claims, and Begin and Shamir arguing for a negotiated compromise or for at least a nonbinding form of conciliation. These contrasting positions reflected different levels of confidence in Cairo and Jerusalem about the strength of each nation’s respective historical claim.

Had Peres headed a purely Labor government, he would likely have accepted arbitration at the outset, convinced as he was of the paramount importance of reviving a warmer relationship with Cairo. Shamir, as foreign minister, held out tenaciously for negotiation or conciliation, partly out of a conviction that Taba was but an excuse for Egypt to keep its distance, partly to avoid giving Likud rivals such as Ariel Sharon a weapon to use against him.

The consensus rule embedded in the coalition government thwarted Peres for nearly two years. He suggested numerous ingenious ideas to Mubarak via intermediaries, seeking some package of Egyptian concessions which he could then use to overcome Likud resistance to arbitration, all in vain. Negotiators met and parted over and over again. U.S. diplomats and lawyers cajoled and suggested subtle legal formulations, while Reagan Administration leaders urged both sides to compromise so as to permit the delayed flowering of the U.S.-brokered peace between America’s two closest Middle East friends. All to no avail.

Finally on January 13, 1986, in an all-night meeting, Peres browbeat the cabinet into agreeing provisionally to an arbitration and normalization “package” proposed by Mubarak, after having threatened privately to bring down the government if Shamir and his colleagues continued to resist. (Peres used this tactic sparingly but on occasion to good effect, as Shamir stood to inherit the prime ministry without facing the voters only if the coalition remained intact for two years.) Unfortunately, Peres then acquiesced to several Likud conditions which proved unacceptable to Mubarak. Negotiations dragged on for another seven months, complicated by continued differences between Peres and Shamir, until the calendar for the “rotation” of the Israeli prime ministry threatened to thwart Peres’ hope of clearing this roadblock to renewal of the broader peace process.

Nonetheless, with vigorous encouragement from Secretary of State Shultz, and from Vice President George Bush during a visit to Jerusalem and Cairo in early September, plus an arduous diplomatic shuttle conducted by Assistant Secretary of State Richard Murphy and State Department Legal Adviser Abraham Sofaer, Egyptian and Israeli negotiators finally agreed on an arbitration formula, just in time to permit the long-awaited Peres-Mubarak summit meeting to take place in Alexandria, one month before Peres relinquished his post to Shamir.

Mubarak then named Bassiuny as Egyptian ambassador, a subtle move designed to minimize negative Arab world reaction while assuring himself of having an experienced and welcome diplomat in Tel Aviv. In the wake of the agreement and summit meeting, Egypt took some steps to “normalize” other aspects of the relationship, though few concrete changes were immediately visible. Peres himself achieved considerable rapport with Mubarak and may be able to build on it as foreign minister. But Yitzhak Shamir has not met with the president of Egypt since the funeral of Anwar Sadat.


No topic consumed more effort or discussion during Peres’ term than his wide-ranging search for a way to renew the long-stalled Arab-Israeli “peace process.” It took deft diplomatic footwork to operate within the restrictive boundaries of the coalition agreement; Peres attempted that by developing a succession of creative verbal formulations meant to entice King Hussein into direct negotiations without provoking the Likud to rebel and force elections prematurely. The end result was barren; there was much talk about a peacemaking process but no peacemaking. That outcome was undoubtedly Peres’ greatest disappointment.

He assumed office with a carefully devised strategy which he took care to explain in detail to the American Administration. Coordination of his moves with Washington became routine, carried out via highly restricted diplomatic channels. Agreement about diplomatic strategy and tactics, to say nothing of personal rapport among the two nations’ leaderships, reached heights of intimacy not seen in U.S.-Israeli relations for nearly a decade.

In fact, those U.S. and Israeli critics of alleged American passivity in the peace process, or of what they saw as excessive caution on the part of the Reagan Administration, badly misread events. Reagan and Shultz calibrated the visibility, style and timing of U.S. diplomatic moves to fit Peres’ strategy. There was probably only one period, December 1985-January 1986, when Peres hoped for a dramatic U.S. peace initiative; even then, however, he must have seen its chances of success as very slim. Acutely aware of the value of Reagan’s friendship for Israel when coupled with the President’s political strength, Peres hesitated to suggest any high-risk U.S. diplomatic move-thinking it would be very likely to fail and could only damage the Administration’s prestige and influence.

Peres’ strategy focused on an intermediate goal: the launching of a formal negotiating process with Jordan and with Palestinian elements not publicly identified with the PLO, in which Egypt and the United States would participate as full partners. No agreement on the final status of the occupied territories was conceivable under the Israeli national unity government; Likud would never agree to an outcome that abandoned Israel’s claim to sovereignty, the Arab protagonists would never accept that claim. Therefore Peres focused on what was conceivable: negotiations initially aimed at an interim arrangement that would be consistent with both U.N. Resolution 242 and the Camp David accords. The Israeli coalition agreement presented no barrier to entering such negotiations.

Once launched, the negotiating process might produce a dramatic challenge to Israel and an ensuing coalition crisis. This, in turn, could ignite an active debate over the price of peace, which would provide Peres with an opportunity to go to the electorate with some chance of gaining a workable Labor majority government. Such a government could then proceed unfettered to hammer out a peace agreement with Jordan. This was the Peres strategy.

Before reaching such a juncture, however, Peres needed first to deal successfully with the Lebanon withdrawal, the economic crisis, and the Egyptian peace freeze with the strength of the broad governing coalition behind him. Therefore many months would have to elapse, at best, before he could be ready for formal peace talks.

Meanwhile, however, there was much quiet preparatory work with Jordan to be done. Peres immediately launched a persistent campaign to persuade King Hussein to cooperate in his strategy. Public compliments, private emissaries and messages, consultations by American, other foreign and Palestinian intermediaries, and, according to hints in the press, secret Israeli-Jordanian encounters all played their parts. A de facto freeze on new West Bank settlements, defended to suspicious Likud partners on grounds of economic stringency, accompanied policy directives to elaborate a new, more liberal style of administration for the occupied territories (directives which were largely ineffective, as it happened). Technical discussions to resolve various practical issues along the Jordan boundary, such as Yarmuk River water sharing, received more sympathetic attention from Peres than from his predecessors. All these were parts of an effort to persuade Jordan that after years of confrontation with Likud governments a wide-ranging process of negotiations, which could eventually culminate in formal peace talks, was now possible. It was deemed essential to prepare the groundwork for persuading King Hussein to come openly to the negotiating table, thus providing essential drama.

From all of this, in the Peres strategy, the PLO must be totally excluded, according to both Peres’ principled conviction and his reading of domestic political necessity. Therein lay the rub.

King Hussein was pursuing his own, quite different agenda which had as its centerpiece a prolonged effort to ensnare Yasir Arafat and a weakened PLO in a joint approach to peace negotiations under the mantle of Resolution 242, looking toward an eventual Jordanian-Palestinian federation. Bluntly, Hussein hoped to bind Arafat firmly into a subordinate negotiating role under Jordanian primacy. He remained convinced that his reign would be endangered were he to meet or negotiate openly with Israeli leaders about the West Bank and Gaza without the legitimacy conveyed by Arafat’s seal of approval. He had to anticipate strong Syrian efforts to disrupt his negotiating strategy in any case. He could perhaps resist Damascus successfully, given stalwart U.S. and Egyptian backing and some support from Saudi Arabia, but only if the PLO were first neutralized and somehow coopted. This counterstrategy of Hussein’s consumed nearly all of the two years of Peres’ term in office; while pursuing it, Hussein deflected all of Peres’ efforts to engage.

This was the conundrum of the peace process. Peres could never solve it, and the United States could not solve it for him, though Assistant Secretary Murphy and other American diplomats toiled endlessly in the shadows to try to find some common ground.

The Hussein-Arafat agreement of February 11, 1985, called for an international framework for negotiations that would include not only the PLO within a joint Jordanian-Palestinian delegation but all permanent members of the U.N. Security Council. It called for total Israeli withdrawal from the occupied territories and Palestinian self-determination in the context of a confederation between the Arab states of Jordan and Palestine. Neither direct negotiations with Israel nor Resolution 242 was mentioned. Even that formulation quickly became embroiled in intra-PLO suspicions and reinterpretations, as Arafat’s own close lieutenants feared a sellout of their dream of an independent Palestinian state.

Months were consumed in sterile arguments over whether “non-PLO” Palestinian delegates might join the Jordanians in a delegation with which Americans, and eventually Israelis, might meet. Hussein lost confidence in the Reagan Administration’s determination when the Congress blocked a promised sale of needed weapons for Jordan’s defense forces. Egypt wanted to encourage the process, but only succeeded in complicating matters for both Hussein and Peres by strengthening Arafat’s negotiating leverage vis-à-vis Hussein.

Finally in February 1986 Hussein gave up, publicly blaming Arafat for going back on his word, and privately expressing more frustration with Washington than with Jerusalem. Meanwhile Shamir had watched calmly while Peres struggled to pull Hussein into his diplomatic scenario, always confident that nothing which might jeopardize the cohesion of the national unity government would come of these maneuverings. He was proved right.

To be sure, lower-level Jordanians and Israelis were increasingly involved in quiet, sub-rosa coordination concerning economic or technical matters; for example, approving the oft-delayed opening of an Arab-run bank in the territories for the first time since 1967. Many observers also attributed Israel’s new, harsher attitude toward prominent PLO spokesmen in the territories, a trend that developed in the late spring of 1986 after Hussein’s break with Arafat, to some tacit understanding between Amman and Jerusalem. It coincided with new Jordanian carrot-and-stick tactics toward the residents of the West Bank and Gaza, clearly aimed at regaining for King Hussein some of the influence among Palestinians he had lost to the PLO during recent years of Jordanian neglect.

Perhaps Hussein might have gone further toward direct negotiations with the Peres government had there been more time left before “rotation.” More likely, however, he would not have. No Arab leader understands as well as Hussein the intricacies of Israel’s domestic politics, none has spent nearly as much time talking candidly with senior Israeli leaders, not even Sadat. Hussein understood well the negotiating constraints of the Israeli coalition: Peres could only promise to initiate a negotiating process; he could not, under Shamir’s watchful eye, dangle any enticing hints about Israeli withdrawal or other possible outcomes.

The risks for Hussein exceeded the possible benefits. A shrewd, cautious survivor, the Jordanian king decided to play for the longer run: moving unemotionally to rebuild bridges to Syria even at the price of some temporary public humiliation; squeezing PLO leaders slowly out of Jordan rather than expelling them brutally; seeking to attract new “alternate” Palestinian leaders in the territories into his camp; cooperating quietly with Israel to improve living conditions there so as to discourage any mass exodus that might destabilize Jordan itself.

One final round of intense U.S.-Israeli diplomatic activity unfolded in August, spurred partly by Mubarak’s eagerness to see the peace process reignited and partly by Peres’ persistent hope for some spectacular breakthrough that could adorn his final weeks in office. It ran aground on Hussein’s wariness, on the then unresolved Taba impasse, and on Hussein’s insistence on an international peace conference that would include the U.S.S.R., a dimension which troubled Reagan and Shultz even more than it did Peres or Shamir.

Thus, Peres’ term ended without any breakthrough in negotiations with Jordan and the Palestinians, despite his genuine sense of urgency about the need to find some accommodation, his tireless cultivation of Hussein, his close working alliance with Washington and his diplomatic creativity and linguistic virtuosity. The diplomatic impasse required political daring well beyond the capabilities of any Labor Party leader of a national unity government. Moreover, talented though he is, Peres is not a man to risk everything on one throw of the dice. Neither is Hussein. That is why they have survived so long in their respective jungles.


Peres devoted a large share of his political energies to a refurbishing of Israel’s image and to broadening Israel’s relations with countries, large and small, the world over. In his visits to Washington, Paris, London, Bonn, Rome and other capitals, in a virtuoso speech before the U.N. General Assembly in October 1985, and in frequent press interviews with U.S. and European media, Peres spoke in reasonable and conciliatory tones, stressing at every opportunity Israel’s desire for peace and its eagerness to find a way to achieve a negotiated settlement of the Arab-Israeli conflict.

With nations of Africa, he was able to capitalize on prior years of quiet diplomatic cultivation to heal some of the ruptures in relations that took place in the early 1970s under Arab pressure. Zaïre and Liberia had already breached the African diplomatic boycott of Israel before Peres took office. The Ivory Coast and Cameroon have joined the list since 1984, and Peres’ dramatic official visit to Cameroon in August 1986 underscored the trend; other states moved up in the queue. And in a glittering finale, King Hassan II of Morocco defied the Arab League by receiving Peres openly in Rabat for a well-publicized official visit, the first ever for an Israeli prime minister to an Arab capital other than Cairo.

Unofficial feelers from Moscow encouraged some Israelis to hope for renewed diplomatic ties with Moscow, broken off in 1967. That hope was premature. Nonetheless, Peres met at the United Nations with the Soviet foreign minister in what was described as a serious, nonpolemical exchange. Israeli diplomats met openly in Helsinki with Soviet counterparts to explore a renewal of consular ties. Poland reestablished a resident diplomatic presence in Tel Aviv. Hungary explored formal trade ties. Even Bulgaria initiated a mild flirtation. In non-communist Europe, Spain established diplomatic relations with Israel for the first time, and Greek official hostility began to ease.

Relations with the United States are, of course, crucial to any Israeli government. Here Peres could build on the strong foundation erected by his predecessors, especially Shamir, whose brief tenure as prime minister had produced the first formal structure for strategic cooperation and launched a U.S.-Israeli free trade agreement, which was then brought to fruition during Peres’ term. Yet Peres succeeded in raising the U.S.-Israeli “unwritten alliance” to unprecedented heights of intimacy, thanks to the close rapport he achieved with the Reagan Administration and congressional leaders of both parties.

Likud spokesmen have often shown a preference for defiant bombast in their statements; the Peres style of earnest reasonableness, by contrast, restored Israel’s standing among officials and the general public in the United States as well as other major countries. U.S. opinion polls reflected Israel’s rebound from the effects of the Lebanon invasion and its ugly sequels; Jewish Americans were reassured about Israel’s course; and congressional support rose to unprecedented heights, a fortuitous dividend at a time when Israel was more dependent than ever on U.S. financial help.

By October 1986 Israel’s international diplomatic balance sheet was solidly in the black. Even the automatic anti-Israel U.N. majorities showed signs of some erosion. No wonder that Peres sometimes seemed to enjoy foreign travel more than the ordeal of grappling with Israel’s irascible domestic dilemmas.


A daunting domestic agenda confronted Peres whenever he returned from cheering audiences abroad. These were years when Israel was in a sour, querulous frame of mind. A disorienting, false euphoria of inflation was giving way to the specter of recession, layoffs, shrunken real wages, tight credit, heavy taxes on travel abroad and prolonged belt tightening.

Always there seemed to be political “scandals” ready to erupt. Intracabinet feuds bedeviled Peres as they had all his predecessors. His friend and now political ally Ezer Weizman was detested by Shamir, who prevented Peres from making much use of Weizman’s special entrée with Mubarak and other Egyptian leaders. When Weizman did finally meet Mubarak in April 1985, his overly optimistic assessment of prospects for an early summit meeting only further complicated Labor-Likud relationships.

Ariel Sharon was busy for months in New York, pursuing a $50-million libel suit against Time magazine. Winning a split decision, he returned in triumph to join forces with David Levy in nearly toppling Shamir at the uproarious Herut convention in March 1986. Twice Sharon almost broke up the coalition by insulting Peres publicly; twice Peres forced retractions and apologies by threatening his own resignation. A similar sequence came in April 1986 with the unpredictable Modai, climaxing months of friction between Peres and his brilliant but sharp-tongued finance minister. Peres forced Modai to resign his post and, indeed, to leave the cabinet. (Shamir brought him back in another capacity after the October rotation.)

Looking back over the tumultuous history of Israel’s democratic experience, the frequency of such political sideshows under Peres was about average. Nonetheless, they tarnished somewhat the image of responsible government which the coalition cabinet attempted to project.

One perennial internal issue, the continuing campaign by the ultra-orthodox religious parties to impose, by law, their definition of Judaism on secular or less-orthodox citizens, produced street clashes in Jerusalem and noisy demonstrations over Sabbath “blue laws.” The government did little but wring its hands when confronted by a worrisome growth in religious intolerance. But when the religious parties pressed for legislation defining standards for Jewish conversion, in a manner calculated to alienate most of American Jewry and further divide Israeli society, Peres and his Labor colleagues stoutly stood against Likud to block the bill, thereby making even less promising Peres’ faint hopes of tempting the religious parties back into an exclusive alliance with Labor at some future time.

Finally there were damaging security scandals: the Pollard affair, in which a Jewish U.S. naval intelligence official confessed to spying for Israel; the Shin Beth affair, involving a high-level coverup of the execution of two Arab hijackers after they were taken into custody by the security service; and the Vanunu affair, in which a trusted but ideologically alienated employee at Israel’s secret nuclear complex was unaccountably able to leave the country with sensitive photographs, and approach The Sunday Times of London with his exposé of an Israeli nuclear weapons production facility, only to be mysteriously apprehended abroad and returned for trial. All these cases, in different ways, blemished the latter months of Peres’ tenure by raising questions about one of his strongest assets: his reputation as a politically adept and effective chief executive.

Meanwhile Israel was not at war, but it was hardly at peace. Husbands and sons no longer fell in Lebanon, but the security zone just across the border did not completely prevent terrorist probes or the sporadic and random firing of rockets from beyond that zone into northern Israel, much less an increase in seaborne commando missions by the growing PLO “navy.”

The Syrian army had been reequipped and enlarged by the Soviet Union after its defeats in 1982; President Hafez al-Assad was proclaiming his goal of reaching military “strategic parity” with Israel in the near future, a goal which brought into question the long-term effectiveness of Israel’s deterrent posture. Threatening statements in both Damascus and Jerusalem fed reciprocal fears and produced war scares more than once. Rabin in particular sought to prevent Syria’s leaders from miscalculating that Israel would not respond if challenged.

The threat of externally inspired terrorism remained ever present. A rash of random attacks on individual Israelis by small groups of Palestinians erupted, inspired, perhaps, by PLO exhortations but directed from abroad only loosely, if at all. Holiday picnickers went to forest campsites carrying sidearms, or stayed nearer home, as stories circulated of bombings, knifings, kidnappings and murders. And nearby in the region, terrorist dramas unfolded: on the cruise ship Achille Lauro, on a Trans World Airlines jetliner hijacked to the Beirut airport, on an Israeli pleasure yacht in Cyprus, at El Al Airlines ticket counters in Rome, Vienna, and later London.

Israelis took heart from the sturdy, uncompromising U.S. response to these waves of terror, feeling less alone in combating them than they had in many years. But as the number of American tourists, fearful of hijackings and bombings, plummeted during 1985 and 1986, a sense of public gloom deepened. The revelation in May 1985 that Israel’s leaders had released 1,150 convicted terrorists in exchange for three captured Israeli enlisted men raised a storm of protest which Peres, Shamir, and Rabin stolidly absorbed but found hard to rebut successfully.

Hardest of all for the public to digest was the spectacle of apparently upright Jewish settlers, some of them high-ranking reserve officers, arrested, brought to trial and convicted of shocking crimes of anti-Arab terrorism, even of plotting to blow up the holy mosque on Jerusalem’s Temple Mount.


Two years is a brief moment in the history of any nation. Yet the balance sheet of the Peres era is one of impressive accomplishment. The prime minister’s personality and background suited him ideally for the leadership of a delicate coalition; few if any other Israelis could have managed it so well.

Substantially achieving most of his major goals, failing only in his effort to revive peace negotiations, Peres also succeeded in lowering the level of clamor and invective in Israeli politics while engendering some renewed optimism about the future to lighten the prevailing malaise. His tolerance of opposing opinions began to have some resonance among the public. From having a public image as a devious “politician,” Peres graduated within only months to being seen as a reliable, credible “statesman”—though whether that change will endure now that he is no longer prime minister remains to be seen. He and Ezer Weizman even managed to give Israel’s second-class Arab citizens a glimmer of hope for greater future equality with the country’s Jewish citizens.

For his party the results of Peres’ successful term were disappointing. Labor gained slightly in the polls, but Peres’ own renewed popularity does not seem to have reversed an increasingly skeptical view of the Labor Party which developed among the Israeli voters over the past decade. The next election, whenever it comes, is likely again to produce a standoff rather than a strong majority for either major bloc.

Israel is harder on its political leaders than most nations. Some Israeli journalists and political observers argue that Peres only transformed images, not reality; that he was only “the great tranquilizer.” They argue that he never demonstrated the real leadership of a David Ben-Gurion, his hero and mentor, by coming to grips with Israel’s basic problems at the risk of his popularity. They point out that his major successes lay in areas in which the country had already reached a consensus of opinion, waiting to be translated into action—as with Lebanon and the economic crisis. Where the nation was divided deeply, as over the future of the West Bank and Gaza, Peres’ critics charge, he did not take the real political risks necessary to break the impasse.

There is something to that view. But can any democratic leader move very far ahead of those who choose him? Peres deeply reveres Ben-Gurion, but he is a different personality, and both the times and the nation have changed considerably since Ben-Gurion’s day. In the circumstances of the mid-1980s, heading a coalition cabinet which could easily have become a “Government of National Impasse,” Shimon Peres left office after two years with his nation more respected, more hopeful, and more accepting of itself than when he arrived. He made many bricks with precious little straw.


Yitzhak Shamir picked up the reins of the coalition after an effortless transition in October. With minor cabinet changes the national unity government continues. An Israeli academic observer commented in early November that “already people are beginning to forget Peres was prime minister.” That is an exaggeration, of course, and from the Foreign Ministry Peres will seek ways to remind them. But it does underscore a real continuity. This is a functioning coalition government that, having survived the “rotation phenomenon,” might well last out its full term. As long as the polls continue to demonstrate that a large majority of the Israeli public prefers coalition government, Labor Party politicians will be wary indeed of risking voter retribution by forcing an artificial crisis on Shamir.

Shamir, in his return to the prime ministry, has already lowered its profile, especially abroad. The air waves are no longer filled with Israeli proposals for new diplomatic initiatives. Continuity of policy is the watchword, but Shamir’s style is far different from Peres’. He tends to wait for issues to come to him, rather than seek them out. When problems do demand attention, as with the awkward Israeli connection to U.S. arms sales to Iran, Shamir has characteristically kept his own counsel. He says as little as possible and relies on the passage of time and other events to turn the page.

In any case, Shamir has found the opening months of his second prime ministry dominated by internal matters: unprecedented Arab-Jewish violence in the old city of Jerusalem, political quarrels within Likud and renewed strife over economic policy.

Shamir inherits an economy precariously stabilized but stubbornly stagnant. Inflationary pressures are showing signs of rising again. Like Peres, Shamir has already found that his greatest challenge is to keep the economic reform from slipping backward. More deep budget cuts, comprehensive tax reform, overhaul of capital markets, measures to reignite growth in exports; these all form the priority agenda for Modai’s successor as finance minister, Moshe Nissim, and equally for the prime minister. In supporting Nissim, Shamir must contend with vicious rivalries within his own Likud camp. Contentious economic dilemmas provide excellent jousting opportunities for Levy and Sharon to undermine Shamir’s leadership. Meanwhile labor unrest will pose the greatest threat to the stabilization program, and perhaps the coalition itself, in the months ahead, with one danger point coming in April 1987 when national wage contracts must be renewed. Shamir has none of Peres’ special influence with the Histadrut. He will need much active help from his Labor partners to get through the economic rapids not far downstream.

The U.S.-Israel strategic relationship remains close and should not deteriorate significantly, at least for the balance of the Reagan presidency. Shamir is very well regarded by both Reagan and Shultz. The Pollard affair and Israel’s role in the U.S. sale of arms to Iran have cast some deep shadows; they may well lengthen as the Iran/contra scandal investigation unfolds. But there is little likelihood of serious damage. In one sense both affairs illustrate that there are special political dangers and costs attached to close alliances between superpowers and smaller states. The current degree of intimacy between Washington and Jerusalem helps bridge rough waters, but also makes both sides appear co-responsible when policy goes awry.

The Iran arms sale case is a perfect example. Besieged since independence by unremittingly hostile Arab neighbors, Israel has long cultivated compensatory ties with non-Arab nations on the fringes of the Arab world: Iran, Turkey and Ethiopia in particular. During his reign, the shah of Iran had responded enthusiastically to Israeli offers of weapons and military technology, training, intelligence exchange, agricultural advisers and industrial know-how. In return Iran supplied a large proportion of Israel’s petroleum needs. Moreover, Iran’s substantial Jewish population enjoyed a status of some privilege under the shah’s protection. Until the shah’s fall in 1979, Iranian-Israeli sub-rosa relations were extraordinarily close, though always officially denied by Iran in deference to Arab sensitivities.

With this background it is not surprising that Israeli officials have frequently tried since 1979 to retain some footholds in Iran, especially among old friends in the military; nor is it surprising that they repeatedly tried without success to persuade American officials to follow a parallel course, stressing the importance of Iran’s strategic value to the West. The sale of weapons, ammunition and spare parts for Iran’s hard-pressed army provided unique possibilities for pursuing this goal.

Thus, when the Reagan Administration finally began to explore a reopening of secret channels to Teheran, for whatever primary motive, it was natural to seek Israeli advice and assistance. The degree of intimacy by then achieved in military, diplomatic, anti-terrorism and intelligence matters between Jerusalem and Washington lent itself easily to such cooperation. Israeli leaders, it was thought, would surely respond readily if asked for help in obtaining Iranian assistance for the freeing of American hostages in Lebanon.

In the embarrassed confusion which surrounded the unveiling of U.S. efforts to use arms sales as a lever to pry loose hostages, the exact roles played by Israeli officials as advisers and intermediaries could become a point of major contention. Containing such a dispute within narrow limits is in the mutual interest of both governments, though that could be hard to achieve in Washington’s political and investigative arena. Undoubtedly however, Reagan, Shamir and Peres will all try to do so, to avoid serious harm to the overall relationship. Congress, overwhelmingly, will share this objective. Still, Shamir’s early months may be bedeviled by this by-product of the “special relationship.”

Shamir is experienced, tough, self-restrained and tactically pragmatic, though his ideological commitment to permanent retention of all of the “Land of Israel” is unshakeable. His leadership style is not notable for vision or charisma but rather for common sense, reticence and patience; for imperturbability, not frenetic activism. Consistently underestimated as a politician, he has now achieved a position of unchallengeable leadership in Likud, probably for as long as he chooses to remain at the helm. His rivals or potential successors, Levy, Sharon and Moshe Arens, are all much younger men. They compete to be his successor and to dominate the party machinery, not to take his job, though this could change if his government unexpectedly collapses over some egregious mistake. Shamir’s patience and stamina will help him conduct the coalition successfully through most crises. He, too, has a fortunate personality for this taxing role.

As an ancient sage once observed, prophecy is dangerous, especially about the future. Yet if one risks the gods’ wrath, one might predict that the Shamir era will closely resemble the Peres era in substance, though not in style. The Israeli people have chosen coalition government. They may be stuck with it longer than they ever dreamed.

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  • Samuel W. Lewis served as U.S. Ambassador to Israel 1977-1985 under Presidents Carter and Reagan. Now retired from the Foreign Service after 31 years, he is currently a Guest Scholar at the Brookings Institution in Washington, D.C., where he is writing a book about recent American diplomacy in the Middle East.
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