NEWS ANALYSIS : Likud Party Conflict Linked to Shamir’s Succession More Than to Israeli Election : Politics: A race-within-a-race pits the resigning foreign minister against two major rivals. Others hope to leap past the contenders.

The rift in Israel’s ruling Likud Party, which threatens to hamper its drive to retain power, has less to do with the coming election than with the race to succeed aging Prime Minister Yitzhak Shamir, who is probably running his last campaign.

The race-within-the-race pits veteran candidates against each other--the low-key and technocratic Moshe Arens, the populist David Levy, the militaristic Ariel Sharon--plus a covey of junior politicians who harbor hopes of leapfrogging the main contenders.

With election day less than three months away, turmoil in Likud offers some ray of comfort to the Labor Party’s Yitzhak Rabin and to Bush Administration policy-makers who have done little to hide their distaste for Shamir and his rigid stand on Middle East peace negotiations. Polls show Rabin running strongly, although at best he can probably win no more than a plurality.

In any event, ambition in Likud burst its banks Sunday when David Levy, the foreign minister, resigned from Shamir’s Cabinet. Levy’s resignation, which doesn’t take effect for another week, is meant to press Shamir to put Levy and his backers in key party and Cabinet positions. Such a windfall would give Levy a leg up in the future succession contest.

Levy’s leverage consists of the vote of ethnic North African and Middle Eastern Israelis, whom Levy, as a Moroccan immigrant, says he represents. The Sephardic vote, as it is called, has traditionally favored Likud. “The calculation in Levy’s risk,” according to columnist Yoel Marcus, “is in the assessment that because of the ethnic factor involved, Shamir will be forced to compromise.”

Levy, a onetime hawk, has staked out the moderate position on peace talks and come out for reconciliation with the Bush Administration. His stand reflects uneasiness among working-class voters in Likud, a group that may feel shunted aside by the party’s ideological focus on retaining the West Bank and Gaza Strip, occupied in the 1967 Six-Day War, and continuing to build Israeli settlements in those areas.

“Those involved with ‘Little Israel,’ who feel they brought Likud to power, feel neglected and betrayed,” wrote the mass circulation newspaper Yediot Aharonot.

Despite threats, it is far from clear that if Levy and his followers were to form their own party, they would join Labor in a coalition after the June elections. They could easily return to Likud.

Levy’s ire was raised during Likud’s convention this month when rivals in Likud pushed him downward in its list of parliamentary candidates. He had reigned as No. 2 since 1981, and hoped to be Shamir’s natural successor. His stay in the Foreign Ministry was meant to shore up his credentials for a run for prime minister.

Defense Minister Arens joined with Housing Minister Sharon to overwhelm Levy at the convention. His defeat there signaled a blow to his aspirations, observers said. “Both Arens and Sharon have now established a prior claim to Cabinet posts--and ultimately to contest the Shamir succession,” according to the English-language Jerusalem Report magazine.

Arens, who as the new No. 2 is considered Shamir’s pick to be the next party leader, has taken a cautious approach to peace talks, in line with his mentor’s position. His disdain for Levy was expressed in a much quoted remark made when someone first suggested Levy for the post of foreign minister. “Don’t you care about the country?” Arens asked with a laugh.

Levy, now No. 4, refers disparagingly to Arens, an American-born aeronautical engineer, as “the professor.”

Arens’ alliance with Sharon, who took the No. 3 spot, was strictly a marriage of convenience. Sharon has frequently alluded to Arens’ lack of a war record to try to undercut his colleague’s suitability to head the Defense Ministry. As late as 1990, Arens was fighting off a joint Levy-Sharon effort to topple him from his place in the succession race.

Sharon, architect of Israel’s 1982 invasion of Lebanon and the arch-builder of settlements in the West Bank and Gaza Strip, has opposed Israel’s entry into the U.S.-brokered Middle East peace talks. He wants Israel to formally annex land already settled by Israelis as well as tracts in government control--about 50% of the occupied territories.

While the three slugged it out, a group of “young princes,” as they are known, were also making their moves; two of them, Benjamin Netanyahu and Zeev (Benny) Begin, moved upward into the top ranks of Likud candidates, and Dan Meridor declined.

Netanyahu, a former ambassador to the United Nations, has made a name speaking for Israel on U.S. television. He is a firm believer in public relations, although recently his message has become a bit shrill. As the Bush Administration increased its pressure on Israel to freeze construction of West Bank settlements, Netanyahu charged that the Americans were trying to push Israel to “the borders of Auschwitz.”

Shamir used Netanyahu as deputy foreign minister to keep an eye on Levy. When Levy demonstrated pique at not being permitted to lead the Israeli peace-talks delegation to the first session in Madrid, Netanyahu shifted to the prime minister’s office.

Begin, son of the late Likud icon Menachem Begin, has risen fast. As self-declared keeper of Likud orthodoxy, he preaches that the West Bank and Gaza Strip are, by historical and divine right, Israel’s. “We can present a document proving that . . . our forefathers paid for those lands in cash--a document called the Bible,” he has written.

He opposed a Shamir proposal to let Palestinians pick a negotiating team to discuss self-rule. He rejects the land-for-peace formula favored by the Bush Administration as “artificial.”

Meridor, the justice minister, suffered at least as great a setback as Levy. Observers say he was punished for his unwillingness to speed up the expulsion process for Palestinians, for opposing a cutoff of Palestinian workers from Israel after violent incidents and for refusing to prosecute Palestinian political leaders.