Prime Minister Benjamin Netanyahu on Sunday escaped indictment in Israel's influence-peddling scandal but was strongly criticized by prosecutors for "closing his eyes" to possible corruption in his coalition government.
Despite calls from the opposition Labor Party that he resign, Netanyahu appeared on television after the attorney general's announcement to declare himself vindicated and accuse his political rivals of hyping the affair in order to force his government's collapse.
"They acted in order to bring about the overthrow of the government, for political reasons," a defiant Netanyahu said. "They acted in order to make us deviate from the path which the public chose us to follow [for] the future of the state of Israel."
Even without an indictment, however, Netanyahu's image and credibility were damaged by the scandal, which stemmed from the botched appointment of an attorney general in January. Prosecutors said the allegations of influence trading were not enough to justify criminal charges against the prime minister but cast a "cloud of suspicion" over his troubled, 10-month tenure.
And although prosecutors have decided not to put Netanyahu on trial, the prime minister's legal woes are not quite over. At least four members of Israel's parliament said Sunday that they will ask the Israeli Supreme Court to overturn the decision not to indict him.
Elyakim Rubinstein, the current attorney general, said prosecutors expect to indict a key Netanyahu ally, Aryeh Deri of the ultra-Orthodox Shas Party, on charges of extortion, fraud and obstruction of justice. Rubinstein said a final decision regarding Deri, who is on trial in a separate corruption case, will be made after a court hearing.
Netanyahu's top political aide, Avigdor Lieberman, and a contractor close to the prime minister, David Appel, face further investigation in the influence-trading case. Justice Minister Tzachi Hanegbi, who was also implicated, will not be charged, Rubinstein said.
The absence of an indictment against Netanyahu appears to have eliminated the immediate risk of a government collapse. Leaders of several small parties within his Likud Party-led coalition said late Sunday that they will remain in the government.
But Natan Sharansky's party of Russian immigrants, which controls seven seats in parliament and could have forced the coalition's collapse, said the party will demand reforms in exchange for supporting the government.
"We will stay on the condition there are serious changes in the way the government functions, with appointments, with the decision-making process, with the partnership between the prime minister and [Cabinet] ministers--or lack of it," said Yuli Edelstein, one of the two Cabinet ministers from the Israel With Immigration party.
Edelstein, who met with Netanyahu before the attorney general's announcement, said the prime minister promised to comply with the party's demands.
Leaders of Deri's Shas Party, a faction with wide appeal to Jews of Middle Eastern and North African ancestry, greeted the news of their leader's likely indictment with anger. A party statement sounded familiar Shas themes of religious and ethnic bias and victimhood at the hands of Israel's ruling elites.
The party controls 10 seats in parliament and had issued an implicit threat before Sunday's announcement that it could bolt the coalition if Deri was the only one indicted. It was unclear Sunday whether the party's leaders would decide to follow through.
In his own brief reaction, Deri referred to the biblical account of the Jewish escape from slavery in Egypt, the basis of the Passover holiday, which begins at sundown tonight. "We overcame Pharaoh," he said. "We'll overcome this too."
Labor Party leader Shimon Peres called on Netanyahu to resign. Although there was not enough evidence to put the prime minister on trial, Peres said, "there is sufficient evidence to put [him] on trial before the public."
Peres, a former prime minister who helped forge the landmark 1993 peace agreements with the Palestinians and lost to Netanyahu in a razor-close election last year, has flirted with the idea of joining Netanyahu in a national unity government in order to save the faltering peace process.
But he has ruled out joining a government tainted by scandal, even in the absence of formal charges.
The current affair centers on allegations that Netanyahu appointed Jerusalem lawyer Roni Bar-On attorney general in January under pressure from Deri, who expected the appointment to help him obtain a plea bargain in his ongoing corruption trial. Bar-On resigned less than a day later under widespread criticism that he was unqualified for the job.
The police probe was prompted by media reports that Netanyahu agreed to Bar-On's appointment under a threat from Deri that Shas would vote against the crucial agreement that had just been reached with the Palestinians on the Israeli withdrawal from the West Bank city of Hebron.
After an investigation, police last week called on Rubinstein and State Atty. Edna Arbel to bring charges of fraud and breach of trust against Netanyahu, Lieberman and Hanegbi, and a charge of extortion against Deri.
The investigators acknowledged, however, that they relied heavily on the testimony of a single witness, attorney Dan Avi-Yitzhak, who is both Deri's former attorney and himself a former candidate for the attorney general's position.
The report released by prosecutors Sunday painted a disturbing picture of back-room dealing in the Netanyahu government and raised what Rubinstein called "puzzling questions" about the prime minister's own behavior in appointing Bar-On, who was not known either as a top-flight criminal lawyer or as an active Netanyahu supporter.
"There is a tangible suspicion that [Netanyahu] proposed that the Cabinet appoint attorney Bar-On to the position of attorney general only . . . in order to satisfy . . . Deri, out of the awareness of, or closing his eyes to, the possibility of the existence of an illegal connection between Deri and Bar-On," the report concluded.
In Washington, the Clinton administration reacted cautiously to the news that Netanyahu would not face indictment. Secretary of State Madeleine Albright said the scandal was "a purely internal matter for the Israelis."
But, interviewed on the NBC-TV program "Meet the Press," Albright said the administration's Middle East trouble-shooter, Dennis B. Ross, will report to President Clinton today on talks last week with Netanyahu and Palestinian Authority President Yasser Arafat.
Times staff writers Marjorie Miller in Jerusalem and Norman Kempster in Washington contributed to this report.