Labor Party Gives Shamir Ultimatum : Israel: It threatens to dismantle the coalition unless there is progress on peace talks with the Palestinians. Defense chief Rabin joins in the move.

Labor Party leaders threatened Thursday to dismantle Israel’s rickety coalition government if, within two weeks, Prime Minister Yitzhak Shamir makes no progress on holding peace talks with Palestinians.

Although such threats have been a staple of the 14-month-old coalition that center-left Labor shares with Shamir’s rightist Likud, this one was novel: For the first time, Defense Minister Yitzhak Rabin, who is considered the keystone of the partnership, joined his Labor colleagues in issuing the warning.

The ultimatum comes on the eve of a visit by Foreign Minister Moshe Arens to Washington where he will meet with Secretary of State James A. Baker III. Baker has tried to arrange a meeting with Arens and Egypt’s foreign minister, Esmat Abdel Meguid, to work out a list of Palestinian delegates to hold talks with Israel. The plan is bogged down in disagreements over the makeup of the Palestinian panel. Rabin thinks that compromises are on the horizon that Israel should accept.

“Reasonable answers were given by the Egyptians to the United States on everything that is linked to the composition of the Palestinian delegation,” Rabin said in a radio interview. “If there is a delay here, I doubt if there is any point in the continuing existence of the government.”

Egypt has been fronting for the Palestine Liberation Organization in preliminary talks with Washington and Israel. A compromise is in the works that would permit not only Palestinians from the occupied West Bank and Gaza Strip to take part, but also residents of Arab-populated East Jerusalem and Palestinians who have been sent into exile.

An elaborate fig leaf has been designed to subdue Israeli opposition to talking to anyone other than Gaza and West Bank residents: The Jerusalem participants must have second homes in the occupied areas. Selected Palestinians-in-exile will be permitted to come home first.

In order to mask PLO approval of the package, Egypt would announce the makeup of the delegation. The Palestinian peace panel is supposed to work out details of Shamir’s proposal to hold elections in the West Bank and Gaza.

Labor’s 107-member party bureau voted to insist on a Cabinet decision on peace talks by March 7.

“There is a need for an immediate decision on issues that will ensure the continuation of the peace process and that a further delay will cause serious harm to Israel,” a party statement said. “The Labor Bureau and the party’s Parliament faction again emphasize that the condition for the continuation of the National Unity government is the continuation of the peace process.”

While backing the proposal, Rabin modified it somewhat in public comments. If the Cabinet is discussing the issue, the deadline can be postponed until a vote takes place, he said.

Finance Minister Shimon Peres was more emphatic.

“We have within the coming two weeks to make a clear decision as far as Israel is concerned, and the clear decision is either yes or no,” he said of the peace talks.

Likud members, already in turmoil because of accusations by hawkish members that Shamir will make significant compromises, were incensed by the Labor move. Deputy Foreign Minister Binyamin Netanyahu said flatly: “I don’t believe in ultimatums. I don’t deal with them, and I don’t yield to them.”

It is Likud dogma that a role for Arabs from East Jerusalem will put Israel’s control over its own capital at risk. The inclusion of outside members is viewed as making way for participation by the PLO--and with it, demands for an independent state and the right of Arab refugees to return to their former homeland.

“Deportees and East Jerusalem Arabs! This is something that is not included in the initiative of the Israeli government,” said Ronnie Milo, the environment minister and a Likud supporter of Shamir.

Despite the tough talk, Shamir’s office has hinted that some form of compromise as outlined by Rabin might be acceptable. Shamir has ordered Arens to hear Baker out and not reject any compromise formulas out of hand but rather to bring them back to Israel for discussion.

These hints of compromise prompted rivals of Shamir to challenge his leadership. Ariel Sharon, fresh from quitting Shamir’s Cabinet, is carrying on a public campaign to unseat the prime minister.

“Shamir should reject the Labor ultimatum immediately,” Sharon said, pouring oil on his inflamed battle with Shamir.