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As Poverty Surges, Bibi Quits Finance Post. His Aim: Oust Sharon

TEL AVIV — Israel earned the dubious distinction this week of being the Western nation with the highest proportion of its children — one in three — living in poverty. An annual report released Tuesday by the National Insurance Institute, Israel’s Social Security office, showed that the number of Israelis living below the poverty line had climbed a full 7% to 1.5 million, or one-fourth the nation’s population. It was the second year in a row in which poverty increased, after six years of stability.

Instead of generating an economic debate, however, the report immediately added fuel to the political furor touched off two days earlier, with the unexpected resignation of the man most responsible for Israel’s economic policies, Finance Minister Benjamin Netanyahu. Netanyahu stunned the nation Sunday by announcing that he was leaving the government to protest the planned Israeli withdrawal from Gaza, scheduled to begin in less than a week. His resignation effectively guarantees that Prime Minister Sharon will face a bitter challenge to his leadership in the months ahead.

Initial polls showed that Sharon enjoys a solid 8% lead over Netanyahu among voters overall, but Netanyahu is ahead 47% to 33% among Likud primary voters, the first hurdle the prime minister must overcome.

Netanyahu’s resignation announcement came as a complete surprise even to some close aides. When he stepped into the Cabinet room Sunday morning for the final discussion and vote on the first stage of the Gaza withdrawal, nobody in the room — and only a handful of people outside it — knew that he had a letter of resignation in his pocket. When he presented it to Sharon seven hours later, all political hell broke loose, television stations interrupted their programs and the Tel Aviv stock exchange dropped 5%. Still, nobody could give a definite answer to the one big question: Why did he do it?

At a press conference, Netanyahu spoke of his conscience, his inability to take part in a decision that he thinks endangers Israel’s security, even his fears, “as the son of a historian” over the way history would judge him a century hence. He said he had “not consulted with anyone except my wife.” Few observers believed him, and not only because he has been known in the past to use pompous verbiage to justify baldly political moves. More telling, all the arguments for resignation have existed for months, as he has voted repeatedly in favor of disengagement. They existed three weeks ago, when he absented himself from a Knesset vote on postponing the withdrawal. They existed 24 hours before his resignation, when he debated Deputy Prime Minister Shimon Peres on Channel 10 television. “You say that the evacuation harms Israel’s security,” Peres said. “Why are you still in the government?” “That’s a good question,” Netanyahu answered. “I remain in the government so that one or two real Likudniks will still be there.”

It seemed obvious that Netanyahu’s move was aimed directly at his fellow “real” Likudniks — the 200,000-odd party members who will vote in the next leadership primary, perhaps as soon as December. His resignation was a clear statement that he intends to face off against Sharon and ride the waves of anti-disengagement resentment within the party.

It is not clear that the gamble will pay off. The timing of his resignation, long after any practical possibility of stopping the disengagement existed, could remind right-wingers that Netanyahu balked at every chance to do something when opposing Sharon might really matter. That might serve to revive his image among settler leaders — and in broader political circles — as a weak leader, prone to yield under pressure and perhaps likely to succumb again to outside pressure for “Disengagement II” after the Gaza withdrawal and elections are done.

Early polls were mixed. A poll in Yediot Aharonot after the resignation announcement showed that most Israelis thought Netanyahu was acting out of personal-political motives rather than principle, and Sharon still had a good 8% advantage over him in a general election. But a poll in Ha’aretz showed Netanyahu trouncing Sharon 47% to 33% among Likud primary voters. Complicating their face-off was the announcement of a leadership run this week by former minister Uzi Landau, the Likud’s most respected hard-liner. The Ha’aretz poll showed Netanyahu winning a three-way race, but by a narrower margin of 35% to Sharon’s 29% and Landau’s 17%. In a run-off, most of Landau’s support would go to Netanyahu.

Much can and will change between now and the primary. Sharon’s advisers point to a successful disengagement, followed by a major military strike against terrorist strongholds, burnishing their boss’s image as a tough commander. Netanyahu’s aides point to a possible spike in terrorism after disengagement strengthening their man.

No less interesting was the reaction of the markets. Netanyahu has been a highly influential finance minister, Israel’s most outspoken advocate of tax cuts, privatization and reduced government regulation. The domestic and international business community sees him as a friend, reflected in a rebound in economic growth and foreign investment during his 28-month tenure. Indeed, his resignation was greeted promptly by a sharp fall of the local stock exchange. The fact that the resignation came Sunday, when international markets are closed, prompted fears that the next day would see a flight by outside investors, bringing about a total collapse.

Sharon acted quickly. Within hours he announced that the minister of trade and commerce, Ehud Olmert — Sharon’s close political ally and an able politician — would replace Netanyahu for three months as acting finance minister. The Olmert appointment, showing that overall policy would not change, calmed the markets instantly. On Monday the international investors stayed put, and the Tel Aviv Stock Exchange rebounded sharply, almost to its pre-resignation level. If Netanyahu expected a catastrophe, it never materialized.

Still to be seen was the impact of the poverty report, the harshest in Israel’s history. The report showed that some 700,000 Israeli children, or one in three, lived below the poverty line of $400 a month per person or $1,000 for a family of four in 2004. That put Israel in first place in child poverty among Western nations, followed by America at 27% and Italy at 25%.

The report was particularly damaging to Netanyahu because it struck at one of the central themes of his economic policy since taking the finance post in April 2003, namely that forcing people off welfare and into jobs would lift them out of poverty. It showed some 160,000 Israeli families with at least one working member below the poverty line in 2004, up from 122,000 families in 2003 — meaning that 28,000 working families had fallen into poverty in a year.

Treasury officials said the numbers were misleading and that they failed to reflect strong economic growth in 2005.

Netanyahu’s resignation seemed unlikely to stop the Gaza withdrawal, the moment for which Israel has been bracing itself for more than a year. The withdrawal and its repercussions will be the main factor in determining the fates of Sharon, Netanyahu and the rest of the Israeli political system — and, in hindsight, in judging whether Netanyahu, until last Sunday widely considered Sharon’s heir-apparent, has in fact committed a brilliant political maneuver or, instead, a major career-threatening blunder.

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