Likud, Labor Join in Israel Coalition : Accord Keeps Shamir as Premier, Assigns Finance Ministry to Peres

The Likud and Labor parties ended six weeks of intricate, on-and-off talks Monday by agreeing to form a coalition government in which Likud’s hawkish Yitzhak Shamir remains prime minister and Labor’s more dovish Shimon Peres leaves the Foreign Ministry but still keeps a hand on key questions of war and peace.

Under the arrangement, Labor’s Yitzhak Rabin will stay as on as defense minister. Likud’s Moshe Arens, a former ambassador to the United States, is likely to be the new foreign minister, according to Likud sources and Israel Television. Peres is to become finance minister but will hold membership in a four-member inner circle of policy-makers.

Clauses in the accord include a ban on talking with the Palestine Liberation Organization and a compromise plan to build a limited number of new settlements in the occupied West Bank and Gaza Strip, officials in both parties said.

No Toasting Yet

The agreement is subject to approval by both parties. Shamir aide Avi Pazner cautioned that minor details are yet to be resolved.

“We cannot drink ‘l’chaim ‘ yet,” he advised, using the traditional Jewish toast.

Likud and Labor negotiators hammered out the long-awaited accord in intense negotiations made more urgent by diplomatic moves in the United States. Last week, the Reagan Administration opened official contacts with the PLO for the first time in 13 years, leaving the caretaker Israeli government scrambling to formulate a counter policy.

The final coalition arrangement, however, hinged not on foreign affairs, but on the shekels-and-cents issue of which party would control the Finance Committee in the Knesset, Israel’s Parliament.

Under the compromise, Labor will, but with its representative approved by Likud.

Still, the shadow of the U.S. decision on the PLO figured in the result.

“The American challenge will bring the government to real decisions,” said Cabinet member Yaacov Tzur of Labor. “We have to think about solutions.”

Added Shamir aide Pazner: “It will strengthen Israel against outside pressure, because it will be a centrist government . . . able to launch diplomatic initiatives that enjoy the backing of a great majority of the people.”

At least some politicians say the new coalition will paralyze Israeli policy in the face of the new diplomatic moves.

“We will not be in the game,” said Labor dove Ora Namir. “The U.S. will decide, and we will react.”

Likud edged out Labor in parliamentary elections Nov. 1 but failed to win a majority and the right to govern on its own. After the vote, Shamir bargained not only with Labor but also with minor right-wing and religious parties in hopes of forging a workable coalition.

The alliance with Labor in many ways maintains the basic form of a “national unity government” that has ruled Israel for the past four years. However, in the new government, Shamir, 73, will not rotate in the prime minister’s post with Peres as he did before.

“That is an important difference,” said a senior Likud official. “Shamir can be the prime minister for four more years. That’s six in all, including his last mandate. It is an historical moment for him.”

The written agreement skirts over how to deal with the issue of peace with the Palestinians on the West Bank and Gaza Strip as well as with neighboring Arab countries, officials of both parties said.

Palestinians, Not PLO

Peace factions of the Labor Party pressed for wording that would keep to the party’s stated principle of convening an international peace conference with an eye to trading occupied land for peace. Likud refused and instead agreed to a vague pledge that left open the way for talks with Palestinians on the West Bank and Gaza, but not with the PLO.

“One thing that did come up loud and clear is that there is no more international conference in any shape or form. The prime minister made it clear that this issue is dead,” pronounced Likud member Yitzhak Modai. “I can tell you what both parties are certainly unified about: No talks with the PLO.”

Peres will keep watch on foreign policy through his participation in a new four-member core cabinet to handle security and peace matters. The other members are Shamir, Arens and Rabin.

“This is Peres’ way of not ceding everything in foreign affairs to Shamir,” said Labor member Tzur.

Last-Ditch Attempt

The creation of the inner circle followed a last-ditch attempt by Peres to hold on to the foreign minister’s post. The effort was rejected by Shamir, who then came up with the idea for an elite foursome.

This was but one of the delicate compromises pieced together during Labor-Likud talks over the weekend and Monday.

Shamir backed down on his goal of building 40 new Israeli settlements on the West Bank and Gaza, although he won a promise from Labor to allow up to eight settlements in Gaza during the coming year. Proposed settlements beyond the first year must be approved on a case-by-case basis.

A similar accord reached in the last government resulted in the building of five settlements in the first year and none thereafter. The United States has called the settlement program an obstacle to peace.

Another compromise concerned a controversial proposal to grant Orthodox Jewish rabbis legal authorization over religious conversions. Likud had promised its religious political allies that the Knesset would pass the law; Labor opposed it.

In the new Likud-Labor agreement, the pledge is dropped in favor of maintaining the status quo; the measure may be brought to a vote in the Knesset, but Labor is not obliged to vote for it.

“If it comes up, a lot of Likud Knesset members will call in sick,” said one Likud official.

The measure, known here as the “who is a Jew?” law, incensed influential American Jews, most of whom belong to Reform and Conservative congregations and who felt that the status of their sects was being diminished. Some of the Americans went so far as to hint at reduced financial and political support for Israel should the law pass.

Promises of Money

Labor also won the right to review promises of money made by Likud--reportedly amounting to about $1 billion--to religious political parties that had been willing to join a Likud government. Defense Minister Rabin was especially angered that Jewish sects whose members are often exempt from army service should receive funds that might be diverted from the military.

Labor’s control of both the Knesset finance committee and the Finance Ministry should ensure a tight rein on such spending.

Finally, Shamir gained assurances that Labor cannot merely walk out of the coalition and form its own ruling alliance with other parties. If either Labor or Likud want to bolt, the agreement said, they must jointly call for new elections. With Likud’s 40 seats and Labor’s 39, the proposed government controls a hefty majority of 19 in the 120-seat Knesset.

In the new government, each party will hold 10 Cabinet positions. Besides the premiership and Foreign Ministry, Likud will control housing, industry, labor, transportation, justice and tourism as well as two ministerships without portfolio.

In addition to the Defense and Finance ministries, Labor gets energy, communications, health, agriculture, education, police and two Cabinet seats without portfolio.

Some elements in both Likud and Labor were opposed to the renewed link, but their voices appeared to be in the minority.

Likud’s fiery Industry Minister Ariel Sharon termed the accord “a total retreat.”

“Likud is afraid to rule,” he charged.

Sharon had been openly lobbying for the post of defense minister, a goal that would seem to be beyond his reach under the new arrangement.

Leftist Labor members who favor talks with the PLO were quiet Monday. Several Labor officials said that one of the leaders of the leftist faction, Uzi Baram, was even considering an offer for a post in the new government rather than sit out the next administration.

The agreement frees Shamir from having to sign with a varied collection of right-wing and religious parties in order to form a government. Religious parties that were on the brink of gaining power and now are being squeezed out were incensed. Rabbi Menahem Porush of the ultra-Orthodox Agudat Israel Party charged Shamir with betrayal. Agudat had fought hard for the “who is a Jew?” legislation.

Officials of the ultra-Orthodox Sephardic Torah Guardians, or Shas Party, have not been heard from. Leaders of the National Religious Party, an Orthodox Jewish grouping, were upset that Labor is getting the Education Ministry, a post promised by Likud when Shamir courted the NRP. It is possible that religious parties may find a place in the government, but with fewer ministries and less influence than in a narrow right-religious coalition.

On the extreme right, the Tehiya Party appears ready to swallow some of its principles and join--if possible. Tehiya had wanted Likud to pledge that dozens of new settlements would be built on the occupied land but now is willing to accept the Likud-Labor compromise, according to Israel Radio.

Considered Anti-Arab

Labor officials are lukewarm about sitting with Tehiya, which they consider overly anti-Arab.

Two other smaller rightist parties that in one way or another favor the physical expulsion of Arabs from land controlled by Israel are out in the cold.

The proposed alliance raises the possibility that Likud and Labor will some day act to reform Israel’s electoral system, which, by giving a seat to parties that win as few as 20,000 votes, makes it possible for splinter parties to hold the balance of power after close elections.

In the past, Labor was more open to reform than Likud, but political observers here say that Shamir’s recent experience in coalition-building, in which he found himself making many and sometimes contradictory pledges to a host of possible allies, convinced him that change is needed.

The country’s ceremonial president, Chaim Herzog, has appealed to both parties to change the electoral system. Among the proposals are some form of run-off elections or districting to increase the chances that a single party can win a parliamentary majority.