Police Urge Netanyahu Be Indicted in Scandal

Israeli police have recommended indicting Prime Minister Benjamin Netanyahu for fraud and breach of trust in an influence-peddling scandal that could threaten the stability of his 10-month-old government, it was reported Wednesday.

The news, reported by Israeli television stations and confirmed by Netanyahu’s attorney, sent a shock wave through Israeli political circles. Analysts said it seemed likely to distract key government and opposition leaders from other critical issues, including the faltering Middle East peace process.

U.S. Middle East envoy Dennis B. Ross returned to the region Wednesday, meeting with Netanyahu and Palestinian Authority President Yasser Arafat in a bid to restart the deadlocked peace negotiations. But it was unclear how much progress could be made in light of the widening political scandal.

Atty. Gen. Elyakim Rubinstein and State Atty. Edna Arbel were expected to decide by the beginning of the Passover holiday Monday whether to pursue indictments in the affair, which stems from allegations that Netanyahu appointed a previous attorney general who would reduce pending charges against Aryeh Deri, a political ally.

Investigators also reportedly recommended indicting three members of Netanyahu’s inner circle, including his top aide, his justice minister and Deri.

All those named in the report, including Netanyahu, have denied wrongdoing.

Yaakov Weinroth, the prime minister’s attorney, said he intended to show prosecutors that the police recommendation was “baseless.”

The attorney, interviewed on Israel’s Channel One television, also said prosecutors told him that the recommendation to indict Netanyahu was made with reservations by police about the strength of the evidence on which it was based.

In a cover letter submitted with its report, the police investigation team said its case relied heavily on a single witness. But police said they had found supporting evidence to back the statements of the witness, who was identified by Israel Radio as Dan Avi-Yitzhak, who resigned recently as Deri’s chief defense lawyer in a long-running corruption trial.

Even without an indictment, the police recommendation could undermine the stability of Netanyahu’s coalition, analysts here said. Several coalition members already have said they will leave Netanyahu’s government if the allegations proved true. The right-religious coalition has 66 of 120 seats in the Knesset, or parliament.

Two small parties, Israel With Immigration, led by Industry and Trade Minister Natan Sharansky, and the Third Way, led by Internal Security Minister Avigdor Kahalani, were considered the most likely to leave the coalition. The two factions, both considered centrist, control 11 seats in Netanyahu’s coalition and could bring down the government if they choose to bolt.

Officially, an indictment would not force Netanyahu to step down. Politically, however, judging by the gleeful reaction from the opposition parties, it might prove difficult for him to do otherwise if charges are brought against him.

Several leaders of the Labor and Meretz parties called on Netanyahu to resign immediately, without waiting for a decision by the attorney general. “A dark shadow has been cast over the prime minister, and he can no longer continue his position,” Haim Ramon, a Labor member of parliament, said.

Labor Party leader and former Prime Minister Shimon Peres was more tempered but described the recommendation to indict as a “political earthquake.”

“If indeed they decide to indict the prime minister, I think there can be no escaping farfetched conclusions--that is, going to early elections,” Peres said. The next scheduled election is in 2000.

But few expected that Netanyahu would do anything other than fight to regain his credibility and political standing.

“I don’t see this as a precedent leading Bibi to the conclusion that he should resign for the good of the country,” said Bar-Ilan University political scientist Gerald Steinberg. Bibi is the premier’s nickname.

Steinberg said it was more likely that Netanyahu would conclude “for the good of the country, he has to fight these forces that would turn the country back to Labor, and the decisions that led to the Oslo accord and endangered Israeli security.”

Netanyahu, who defeated Peres by a slim majority in May, inherited the Oslo peace accords--Israeli-Palestinian agreements signed in 1993 and 1995--from his Labor predecessors and has never hidden his distaste for them.

The questions hanging over Netanyahu and his aides also appeared to severely weaken any chance of Labor joining in a national unity government.

The police recommendation reported Wednesday grew out of a 12-week probe into allegations that senior officials in the prime minister’s office conspired to appoint an attorney general who would reduce pending criminal charges against a key political ally.

Roni Bar-On, the lawyer and Likud Party activist who was appointed attorney general in January, resigned less than a day after taking office.

A political furor erupted over allegations, first aired by Channel One, that Netanyahu had agreed to appoint Bar-On as part of a complex deal to help parliament member Deri.

A leader of the ultra-Orthodox Shas Party, Deri stepped down as interior minister in 1993 after he was indicted on charges of illegally funneling government funds to his party and groups affiliated with it.

Police questioned 60 witnesses, including Netanyahu. They reportedly recommended indictments of Deri, Avigdor Lieberman, who is the director of Netanyahu’s office, and Justice Minister Tzachi Hanegbi.

Times staff writer Marjorie Miller and researcher Batsheva Sobelman of The Times’ Jerusalem Bureau contributed to this report.