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Yarom Ariav, director-general of the Finance Ministry, believes that his famously combative, corruption-fighting accountant-general, Yaron Zelekha, has grown somewhat more amiable. He also sees no indication that Stanley Fischer is about to abandon the Bank of Israel for the World Bank, though government sources have indicated they wouldn't stand in his way if he's asked.

"Yaron Zelekha is not a headache," Ariav says in conversation with TheMarker, belying what a lot of other treasury leaders have said. "He is a talented guy, goal-oriented, and he's aware that he has to improve his human relations with the other (treasury) division chiefs."

Zelekha was a hiree of Benjamin Netanyahu, when the latter was finance minister. He made not a few enemies by spearheading reform sin the way the government does business, notably refusing to change the terms of government tenders after a contract has been awarded, and also testified against Ehud Olmert in the case of Bank Leumi's privatization. The manner of the bank's sale, which happened under Olmert's watch as finance minister, is still under investigation.

Zelekha has his own agenda, Ariav says: in his opinion, Zelekha got the point regarding his relations inside the treasury, "and there are results in the field."

Changing subject, Ariav projects that the reform in education will stimulate economic growth in the long run, not lest by narrowing social gaps and cultivating better quality for the next generation.

Right now, the Finance Ministry has no minister: Olmert is serving as acting finance minister and has delegated all handling of  Bank Leumi's sale to Rafi Eitan, head of the Gil - Pensioners Party.

In the absence of an active minister, Ariav has been the living spirit handling the education reform and achieved an agreement with the teachers' union about a substantial pay raise for teachers, in exchange for structural changes at the Education Ministry and more executive flexibility for school principals.

"There is change in the rules of the game, and in the status of teachers and how they see their role," he says. "We reached these things in cooperation with the teachers' organizations, because this type of change can't be forced, not on the teachers and not on the Education Ministry. There is a clear message regarding priorities: we have raised education to the top of the pyramid."

They say you capitulated, that you gave the teachers an excellent wage agreement while hardly getting anything in return. They say that the price of a weakened prime minister and absent finance minister is NIS 80 billion of wasted reform.

"My answer to all those pointing at flaws in the education reform: we at the treasury are engaged in the art of the possible. There was a window of opportunity and we took advantage of it. The teachers union was prepared to compromise on improving the status of the teacher. We signed a historic agreement even though the prime minister is weak and there's no finance minister.  The reform is more than a pay raise for teachers: it involves structural change of the education system, it strengthens the status of principals, increases the time teachers spend at school and shifts some of the teaching hours to smaller groups.

"The government will have to set priorities. We are now raising the flags of education and defense, which will have to come at the expense of other things."

Like what?

"Efficiency in the state budget."

Meaning, blanket budget cuts.

"That too. There is still room for greater efficiency. The budgets of all the ministries still have big pockets of flab. They will be cut. The plan isn't ready yet, but we are looking at cutting taxes that warp the economy. For instance, there are still quotas that cause distortions, through which the economy can achieve greater exposure. I don't necessarily mean sales tax on cars, which doesn't cause any distortion, because Israel has no car industry.

"In any case, lowering the national debt is still a priority. Israel's entry to the OECD requires us to reduce the debt to accepted levels, and we're still far from that. We must not forget that we operate in a dynamic world, and while we improve, the world continues to change, and the gaps widen again."

Is the governor of the Bank of Israel, Stanley Fischer, staying or leaving?

"I very much hope he's staying. We have no indication to the contrary."