Israeli Cabinet Reorganization Reported Near

A reorganization of the Israeli Cabinet was reported to be imminent early today, with the promise of averting the collapse of the nation’s 19-month-old coalition government.

The new lineup began to take shape less than 24 hours after the feuding coalition partners had appeared to rule out any compromise.

Officials said it could have a far-reaching impact on foreign and economic policy--particularly after October, when Prime Minister Shimon Peres and Foreign Minister Yitzhak Shamir are scheduled to trade posts under the coalition agreement.

The crisis developed Monday when Peres, who heads the Labor Alignment, demanded the resignation of Finance Minister Yitzhak Modai, a member of Shamir’s Likud Bloc, for making critical remarks about Peres. The prime minister said that if Modai did not resign, he would take steps at Sunday’s regular Cabinet meeting to have him dismissed.

Posts Exchange Plan

A senior government official said the proposed compromise calls for Modai to exchange posts with Shamir. Then, in October, when Shamir is to take over as prime minister, Peres would take over the Finance Ministry rather than the Ministry of Foreign Affairs.

There was still opposition to the scheme Thursday night in both parties, but Peres and Shamir reportedly favor the compromise and are expected to prevail over their colleagues. They are expected to meet later today to seal the deal.

On Wednesday, Modai offered to resign for the good of the country, but his Likud colleagues rejected the gesture. They said that if he were forced out of the Finance Ministry, they would all resign with him.

Shamir warned, “without the slightest doubt or hesitation,” that if Peres tried “to fire or cause the resignation of the finance minister, the Likud will not participate in this government and the government will be dismantled.”

Another Compromise

But on Thursday, Israeli television quoted him as saying that he favors the proposed Cabinet reorganization and that “the national unity government was built on compromise and this is just another one of them.”

An aide confirmed Shamir’s support for the proposed Cabinet changes and said that most other Likud ministers share his view. The main holdout, the aide said, was Housing Minister David Levy, who returned to Israel earlier Thursday after cutting short a visit to Canada.

Israel radio said that Levy fears the new arrangement could lead to more friction between the coalition partners and more frequent crises. Also, the radio suggested, Levy may want the finance portfolio for himself.

Another official close to the Likud deliberations said Thursday night that Levy opposed the deal simply because “there’s nothing for him in it.”

Levy has already declared himself a contender for leadership of the Likud’s dominant Herut faction, a post Shamir now holds. Levy presumably has refrained from an open challenge at this time because of the rotation agreement, which specifically designates Shamir as the man to take over the prime minister’s post from Peres in October.

But if the coalition should collapse, political analysts here believe, Levy would move immediately to wrest the party leadership from Shamir.

Hopes for Coalition

For Shamir, whose support with the Likud rank-and-file appears to be declining, the compromise keeps alive his hopes that the coalition will survive until rotation time, giving him what may be his only chance to be prime minister again. He was prime minister from September, 1983, until formation of the national unity government a year later.

Modai made no public comment about the compromise, but he is known to have coveted the Foreign Ministry for some time. The post could be a stepping stone, for he is described as ambitious to become prime minister some day.

For Peres and his Labor Alignment, the attraction of the compromise would apparently be the elimination of what many have called the major flaw in the coalition agreement--its failure to secure one of the important economic portfolios for Labor. That meant that once Peres was rotated out of the top job into the Foreign Ministry, the rightist Likud Bloc would have almost unrestricted control over government purse strings.

This control is important in part because of ideological differences between the two parties. Peres, for example, favors a switch in emphasis in the government’s economic program from austerity to growth; Modai has argued for continued restraint.

Eye on Voters

Also, the party that controls government spending can use that power to woo voters in the event that new elections must be held.

Labor opponents of the compromise feel that Peres should use the clash over Modai to end the coalition government and thereby avoid the rotation. In this view, Labor could win enough additional support in new elections to enable it to form a narrow but more ideologically homogenous government.

A proposal to scrap the coalition and go to elections was offered Thursday night at the closing session of the Labor convention in Tel Aviv, but the delegates backed Peres and defeated it overwhelmingly.

Peres is known to be concerned that any move to break up the coalition could be seen as a move by him to renege on his word--a point on which he is particularly sensitive after having managed in the last 19 months to overcome most of what some here call his “tricky Shimon” image.

On the other hand, a senior government official noted, the proposed compromise will leave Labor without a strong voice in foreign affairs after rotation.