Now for the Difficult Part: Shamir’s Government Will Walk a Thin Line : Israel: The prime minister needed only the radical right to win, but to govern he needs support from both Labor and the Bush Administration.

For the past six years, Israel has been ruled by a two-headed monster known as the Government of National Unity. Last week Prime Minister Yitzhak Shamir slayed the beast, replacing it with a narrow-based, Likud-led coalition. The storybook quality of this victory is flawed, however, by stark political reality: Unlike the mythic heroes of old, Shamir the dragon killer is not likely to live happily ever after.

He may well come to miss the beast. Shamir is a man who, in his three terms as prime minister, has elevated inaction to an art form. The unity government, which balanced Likud and Labor, hawks and doves, was a perfect vehicle for him precisely because it provided an excuse for political and diplomatic paralysis. Shamir’s new coalition, whatever its flaws, offers no such option. Sooner rather than later, the reluctant dragon killer will have to do what he likes least--make hard decisions about peace. Shamir’s choices will affect U.S.-Israeli relations, the Middle East diplomatic process and the continuing influx of Soviet emigres into Israel.

Specifically, Shamir will be called on to decide what to do about the Palestinian issue. On his left, the Bush Administration and the Israeli Labor Party--magically transformed from docile junior partner to a fighting opposition--are pushing hard for Israel to renew its peace initiative and sit down for talks with the Palestinians.

Secretary of State James A. Baker III expressed U.S. frustration with the peace process last week when he gave out the White House phone number and told Israeli officials they should call when they were serious about peace. Without Israel, Baker said, the United States will end efforts to set up talks. The short-term goal of the peaceniks is a conference in Cairo, followed by West Bank-Gaza elections and the establishment of Palestinian autonomy. But Shamir is well aware that there is a long-range aim as well: Israel’s withdrawal from most or all of the occupied territories and the eventual establishment of Arab sovereignty.

This is something that Shamir, a lifelong hard-liner, opposes. His method has been to stonewall, but he is already being pressured by at least half a dozen far-right militants in his coalition to annex occupied land. The super-hawks want, at minimum, massive Jewish settlement in the West Bank and Gaza--and no peace talks.

At the center of the Shamir government is the Likud, a right-center bloc that has ruled for most of the last 13 years. This time, however, the more left-leaning Labor partners of the National Unity Government have been replaced by politicians from the far right, tilting the entire Cabinet in a more hawkish direction. In the face of such diametrically different demands, Shamir’s problem is simple: He must keep American pressure at a manageable level, while holding together his narrow coalition. The solution is as tricky: To form a government, Shamir needed only the support of the radical right; to govern, he requires the cooperation of the Bush Administration and the Labor Party. It is difficult to see how he can have both.

This is largely a matter of arithmetic. Shamir’s coalition, minus the votes of the three small, super-hawkish parties that support him, equals 55 members of the Knesset--six fewer than the majority he needs to sustain his government. These parties have made it clear that they will not go along with any serious diplomatic initiative--especially not the kind that the American government advocates. Any attempt by Shamir to freeze settlement, or to revive the peace process, would almost certainly lead to a walkout.

But there is another set of numbers in the equation. The hundreds of thousands of expected Soviet immigrants, minus massive American financial support, equal economic and social chaos for Israel. This is a real possibility. Past American Presidents have not used foreign aid as a lever against Jerusalem, but the Bush Administration gives every indication of planning to do so. The United States, for example, is holding up a sorely needed, $400-million bank guarantee for immigrant resettlement. Money will be forthcoming only if Israel provides assurances that it will not be used for housing in the occupied territories. The Bush Administration defines the occupied territories as including East Jerusalem, although Israel and the U.S. Congress regard the entire city as its capital.

This condition is painful, but probably bearable for Shamir. What concerns him is the precedent. Should the United States make further financial aid conditional on Israeli agreement to attend a peace conference with Palestinian delegates it finds unacceptable, or to stop Jewish settlement in the West Bank--and especially East Jerusalem--he could never go along. But without continued American aid it would be all but impossible to absorb the anticipated immigrants.

Faced with equally unpleasant alternatives, Shamir has begun sending out contradictory signals. In his inaugural address, he spoke in conciliatory terms of his commitment to the Camp David accords, and of his willingness to negotiate with the Arabs and the Palestinians. Shamir laterdispatched Defense Minister Moshe Arens to the West Bank as a sign of solidarity with the Jewish settlers.

Rhetoric will take Shamir only so far. His inclination is to edge toward the center but to do that he will need the cooperation of two ex-generals-turned-politician--Ariel Sharon and Yitzhak Rabin.

Sharon is the leader of the militant wing of the Likud. He is also the minister of housing in the new government. An ambitious man, he wants to follow the aging Shamir as prime minister. To do so, he will have to succeed in his primary task--building tens of thousands of homes for Soviet immigrants. If Sharon becomes convinced that this is possible only with U.S. aid--he could become an improbable force for moderation.

The former defense minister is less ideological than is often supposed and he has been known to display flexibility when his political interests are concerned. With his support, Shamir could conceivably renew the peace process, albeit at a cautious pace.

Such a move would probably drive the super-hawks out of the coalition. This is where Rabin comes in. Rabin recently launched a challenge to Labor Party leader Shimon Peres. If he succeeds--and his chances seem better than even--he is on record as favoring another Government of National Unity, in which he would play a restraining role.

Any other dragon slayer might be dismayed at the prospect of a new unity coalition. But for Shamir the Reluctant, under pressure to move in opposite directions, it would be more desirable than to climb aboard yet another two-headed monster for a slow ride to nowhere.