THE IMPACT OF ROTATION IN ISRAEL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP06T00412R000606250001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: May 9, 2012
• Sequence Number: 1
• Publication Date: October 1, 1986
• Content Type: MEMO

Declassified in Part - Sanitized Copy Approved for Release 2012/05/09: CIA-RDP06T00412R000606250001-1
SUBJECT: The Impact of Rotation in Israel
NESA M#86-201511
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DISTRIBUTION:
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Dep Asst Sec Suddarth, State/NEA
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Mr. Aaron Miller, State/Policy Planni
ng
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Mr. Philo Dibble, State/NEA/ARN
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Mr. Philip Wilcox, State/NEA/IAI
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Mr. George Harris, State/INR/NESA
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Mr. Bob Taylor, OSD/ISA/NESA
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Lt. Col. James Carney, OSD/ISA/NESA
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Mr.
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Mr. Dennis Ross, NSC
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Mr. William A. Kirby, State /NEA
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Mr. David Dunford, State/NEA/EGY
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Mr. Daniel Kurtzer, State/NEA/EGY
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Mr. Thomas Dowling, State/NEA/ARN
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Mr. Leon'Weintraub, State/INR/NESA
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Central Intelligence Agency
Washington, 0. C. 20505
DIRECTORATE OF INTELLIGENCE
1 October 1986
The Impact of Rotation on Israel
Summary
Given the checks and balances built into Israel's National
Unity Government, no dramatic changes in government policy are likely
after Prime Minister Peres (Labor Party) switches jobs with Vice
Premier and Foreign Minister Shamir (Likud) in mid-October. The
balance between Labor and Likud will remain in the 10-member executive
inner cabinet, giving Labor the ability to veto Likud initiatives.
Shamir will, however, discourage moves toward an international
conference on Middle East peace. Likud also may try to build a few
new settlements on the occupied West Bank to placate hardline
supporters. Labor and Likud agree on the broad outlines of policy in
several other ke areas--the nomy, South Lebanon, and response to
terrorism.
Both Peres and Shamir have vested interests in assuring the
continuation of the Unity Government--making the chances even that it
will complete its term ending in the fall of 1988. Peres does not
want to tarnish his new hard-won image for honesty, nor is he
confident that Labor can attract sufficient religious party support to
put together a narrow coalition. Shamir will likely work to maintain
the Unity Government in order to discourage challenges from his Likud
rivals, Trade Minister Sharon and Deputy Premier Levy.
This memorandum was prepared by the 25X1
Israel-Jordan-PLO Branch, Arab-Israeli Division, Office of Near Eastern and
South Asian Analysis.- Information as of 1 October 1986 was used in its
preparation. Questions and comments. should be addressed to Chief, Arab-Israeli
Division, 25X1
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Background on Rotation
Aside from the switch in positions between Peres and Shamir, no other
changes in government structure are mandated by the unity agreement, although
there may be some cabinet shifts incidental to rotation. 1/ The balance of
forces between Labor and Likud in the Knesset, Cabinet, and most importantly the
inner cabinet will remain the same. Both Peres and Shamir retain the right to
refer any issue they want to the 10-man Inner Cabinet for a decision. Because
of the five-five split in the Inner Cabinet between Labor and Likud members,
Labor will be able to block controversial Likud initiatives after rotation. -125X1
Yitzhak Rabin, second in Labor to Peres, will remain as Defense Minister
with the key role in formulating defense and security policy. We believe that
Rabin will serve as a restraining influence on Likud hardliners--led by Trade
Minister Sharon--who support more extensive use of force in the region,
especially against Syria. Rabin also retains ministerial responsibility for
day-to-day administration of the occupied territories. While Rabin is not
opposed ideologically to greater local authority for Arabs on the West Bank and
Gaza, his overriding concern for security in the territories--combined with the
absence of an activist Prime Minister like Peres--probably will retard efforts
to allow Palestinians increased self-rule.
Foreign Policy After Rotation
Given the continued balance between Labor and Likud in decisionmaking
bodies, no dramatic changes in foreign policy are likely, although Shamir's
style and tone will differ markedly from Peres's. Shamir's tougher and more
inflexible rhetoric by itself may discourage already limited prospects for
progress in relations with neighboring countries.
1/ Likud has been one person short in the full Cabinet since Justice
Minister Modai was forced to resign in late July. Shamir has hinted he will
bring Modai back into the Cabinet after rotation. Health Minister Motta Gur of
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Labor has declared he would resign rather than serve under Shamir. The National
Religious Party has voted to replace longtime Minister of Religious Affairs
Yosef Burg with the more hawkish Zevulun Hammer.
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Likud's inflexible attitudes may further slow progress on peace issues. If
Arab-Israeli preparatory committees or an international conference were close to
realization, Likud and Labor might en decide to resolve the issue via a
national election. 25X1
Shamir will try to maintain the improvement in relations with Egypt, but his
tougher rhetoric may hurt. He frequently has criticized the Egyptians publicly
for their slowness in expanding normalization. Shamir--unlike Peres--does not
have good rapport with the Egyptian leadership. If he continues to harp on
perceived Egyptian violations of the Camp David accords. may cause renewed
chilliness in Israeli-Egyptian relations.
Labor and Likud agree on the broad outlines of other key foreign policy
issues. Both endorse the security zone maintained by General Lahad's
Israeli-allied Army of South Lebanon as Tel Aviv's only viable option to
preserve the security of its northern border. Both favor strong responses to
Palestinian and Lebanese terrorism.
Likud probably is more willing to engage Syria militarily in retaliation
for its support of attacks against Israeli and Lahad forces, for Syrian support
of terrorist operations against Israeli interests abroad and to head off Syria's
massive military modernization program. But, we believe Defense Minister Rabin,
who does not want a conflict with Syria, will restrain Likud adventurism in the
interest of strengthening Israel's international support--particularly from the
United States--should Syrian military moves or suoOort of terrorism eventually
compel Tel Aviv to respond-militarily.
Economic Policy after Rotation
Shamir takes over an economy that has made significant progress toward
stabilization since implementation of a tougher austerity program in July 1985.
Tighter monetary policy and measures designed to reduce the budget deficit have
combined to slash inflation to a monthly rate of 1-1.5 percent compared with a
15-20 percent rate a year earlier. The government and private sectors in
September capped a comprehensive set of wage agreements that at least
temporarily will ensure that inflation is kept at acceptable levels. An 18.9
percent devaluation of the shekel--and substantial US supplemental economic
assistance--contributed last year to the first positive balance of payments in
over 30 years. Current trends indicate a favorable balance will be repeated in
1986.
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Under Shamir, the government is likely to continue with the economic
policies initiated under Peres. The Likud leadership generally agrees with
current objectives, and, in any event, is unlikely to risk a major policy shift
for fear of making Likud vulnerable to voter displeasure. Labor has been
pushing for a continued role in economic decisionmaking, and Shamir may
acquiesce to spread the blame should the economy take a turn for the worse. 25X1
Shamir has announced that his economic program will focus on several key
issues--some of which already are under consideration--including tax reforms;
cuts in subsidies and public sector spending; and increased productivity and
employment. A ministerial committee already has approved a reform package aimed
at reducing the government's role in the capital markets. A proposal to revamp
the tax system currently is circulating among various government ministries and
private groups. 25X1
Shamir will have to walk a careful line during his two-year term, however,
if he is to balance sustained reductions in the budget deficit with increased
employment and heavy military spending. Growing budget deficits would generate
strong pressures to increase taxes, further devalue the shekel, and borrow money
to avoid spending cuts in Israel's pervasive social welfare programs. An early
resurgence of inflation would spark labor demands for wage increases at the next
round of wage negotiations in March 1987, which could severely damage the
stabilization effort. On the other hand, further reductions in
expenditures--including defense spending--would exacerbate unemployment and
further complicate Israel's efforts to maintain qualitative military superiority
over the Arabs. F- I 25X1
The Durability of the Unity Government After Rotation
We believe the chances are good that Israel's Unity Government will survive
several months to one year after rotation, and there is an even chance it will
complete its term ending in the fall of 1988. The same vested interests that
kept Peres and Shamir from ending their uncomfortable power-sharing arrangement
from 1984 to 1986 will continue to operate after rotation.
Peres is not confident that Labor can form a narrow government, given its
failure to entice the religious parties to enter a non-Likud coalition. In the
current Knesset, Labor and the small left-of-center, Zionist parties have a
total of 53 seats. They could not reach the necessary 61-seats necessary for a
coalition majority in the 120-member Knesset without support from some of the
religious parties. We believe that such support is unlikely because of the
continuing rightward drift of the National Religious Party and hardening
attitudes among the SHAS Sephardi religious party leadership. The two parties
together cnntrnl nine of the 13 Knesset seats held by the religious parties.
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Peres clearly is not convinced that Labor can win a sufficiently decisive
victory and, therefore, will be unlikely to force an early demise of the Unity
Government. Israeli polling data suggest that Labor would not be in a much
better position after a new national election. Although most polls suggest
Labor would gain a few seats and Likud lose several, such polls have
consistently overvalued Labor and underestimated Likud strength. Even with
several extra seats, Labor would still be unable to form a coalition without
some religious parties.
Peres's concern with his image probably will continue to dissuade him from
bringing down the government, especially in the first several months after
rotation, short of a dispute with Likud over a major Arab-Israeli issue, such as
participation in an international peace conference. Peres is powerfully
motivated by a desire to maintain the image for honesty and integrity he
developed over the past two years. In our view, his desire to maintain his
voter credibility was an important contributor to his decision to honor his
commitment to switch posts with Shamir. Peres feared that voters would punish
him in subsequent elections if he were seen as having seized on a weak pretext
for ending the government.
Likewise, Shamir's motives for maintaining the Unity Government will be the
same after rotation as before. In particular, fierce competition for leadership
of Likud probably will convince Shamir to strive for a full, two-year term in
order to delay what promises to be an intense struggle for party control among
leaders of Herut, the dominant Likud faction. 25X1
The Impact of Rotation on Labor Party Politics
Peres will continue activity to promote his foreign policy goals after
rotation. His primary effort undoubtedly will be to advance the peace process.
Even though Peres is in firm control of the Labor Party, his policies
already are being challenged more by some party members than during the last two
years. He inevitably will lose the extra power and prestige that goes with the
premiership when he switches jobs with Shamir in October. Without the
"untouchable" status he had developed while in the Prime Minister's office,
Peres will be more susceptible to challenge for party leadership as the next
Progress on the peace process could help Peres's position within the party;
continued stalemate would probably hurt it. If the Unity Government lasts until
1988, Peres could face a serious challenge for leadership of the party. His
most likely challenger would be former rival Yitzhak Rabin, who would probably
see 1988 as his last chance to regain the premiership.
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The Impact of Rotation on Likud Party Politics
Shamir's tenure as Prime Minister will give him a slight edge over his
rivals in the Herut leadership battle. Yet the bitter, relentless competition
among Shamir and his rivals--former Defense Minister Arens, Deputy Premier Levy
and Trade Minister Sharon--will continue to boil just below the surface.
Nevertheless, we believe that Levy and Sharon will refrain from mounting early
challenges to Shamir in order to avoid censure within the party for
jeopardizing Likud's control of the premiership.
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