The NUG under Shamir
As stipulated in the 1984 coalition agreement, after stepping down as prime minister, Peres became foreign minister and Shamir returned to the post of prime minister. The 25-member Shamir government was almost identical to the Peres government, although there were disputes over subcabinet appointments, including the post of the Israeli ambassador to the United States.
With his shift to the foreign ministry, Peres took with him many of his advisers and replaced the ministry’s two most senior professionals, Director General David Kimche and Deputy Director-General Hanan Bar-On. Compromises averted a major crisis and permitted a relatively smooth transition. On October 20, 1986, the Knesset approved the new government by a vote of 82 to 17, with three abstentions.
The new prime minister was very different from his predecessor and even from his political mentor, Begin. nevertheless, Shamir noted that he was presenting a government of continuity, the second term of the national unity government. “The government will continue to place the aspiration for peace at the top of its concerns, will act to continue the peace process according to the framework agreed upon in Camp David, and will call on Jordan to open peace negotiations.” The government’s official guidelines also stated that Israel would object to the establishment of another Palestinian state in the Gaza Strip and in the area between Israel and Jordan and that Israel would not negotiate with the PLO.
To consolidate the previous government’s economic achievements, the Shamir-led government had to restrain spending, while trying to generate real growth. In January 1987, the nUG adopted a series of measures that, in effect, constituted the second stage of the 1985 emergency efforts.
The government sought to lower inflation to an annual one-digit rate, improve further the balance of payments, increase exports and their profits, create a climate and condition for business growth while reducing government involvement in the economy (that is, to reduce the size and significance of the public sector), and cut the budget.
The government devalued the shekel by 10 percent (from 1.5 to 1.65 to the dollar), increased prices on some subsidized goods (for example, bread, milk, frozen chicken), extended some price controls, instituted tax reform, and postponed payment of part of the cost of living allowances, as well as other measures. The programs proved successful.
Under pressure from the United States, the Israeli cabinet decided at the end of August 1987, by a vote of 12 to 11, with one abstention, to terminate an important military project, construction of the Lavi jet fighter. The Lavi had been designed specifically to meet Israel’s military needs, and there had been some hope that it would make Israel less dependent on foreign military supply.
The project was canceled because of its cost and the economic burden it placed on Israel, the U.S. Department of Defense’s displeasure with the program, and division within the IDF general staff over the utility and importance of the project, especially when other programs were competing for scarce resources. The Israeli government was concerned that, unless it canceled the project, U.S. aid and, potentially, the overall relationship would be negatively affected, since much of the development funding came from the United States.
The United States argued that Israel would be better off buying advanced American fighter jets.Although many Israelis accepted the apparent logic of the decision, there was substantial anger and dismay in Israel, particularly among the workers at Israel Aircraft Industries and their supporters. Moshe Arens, generally considered to be the “father of the Lavi,” resigned from the government in protest.
The Palestinian Intifada
The relative quiet in the West Bank and Gaza Strip that had followed the war in Lebanon was shattered in December 1987. The Palestinian Intifada (literally, “shaking off” in Arabic) began after an accident on December 8, in which a truck driver at a Gaza Strip military checkpoint crashed into a car in which four Gaza residents were killed. The next day protests and violent demonstrations took place in the Gaza Strip and soon spread to the West Bank and later to Israel, especially Jerusalem. Many of the protesters were young Palestinians who used rocks and rubble to confront Israeli authorities.
The efforts continued for months and violence continued to escalate. Israel was confronted with the need to stop the uprising and restore order. As the Intifada expanded, Israel, under the direction of Defense Minister Yitzhak Rabin, responded with an effort to terminate the riots and demonstrations.The Intifada helped to generate a new effort by U.S. secretary of state George Shultz to offer a peace plan and pursue negotiations to end the conflict, but little progress was made. Demonstrations, riots, and violence increasingly characterized the area.