Just as the Likud was gearing uo for its election campaign, party founder Ariel Sharon announced that he was leaving the Likud to establish a new rival party.
A political powerhouse with a win of 40 Knesset seats in the 2003 elections, the Likud had found itself divided by the disengagement plan, which pitted party moderates against the further right bloc.
Foiled by a determined Sharon, who swore to get his disengagement plan implemented, the Likud rebels attempted to politically outmaneuver the prime minister in the wake of the Gaza pullout, and in 2005, after Labor's departure from government Sharon ended speculation of an impending "big bang" in Israeli politics and announced new elections and soon after the formation of the new party, Kadima.
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Sharon's subsequent departure from the Likud, and the defection of many high profile Likud members to Kadima left the Likud floundering. Opinion polls predict that the party will lose at least half of its seats in the next elections, most to Kadima.
As finance minister under Sharon, Likud's new leader, former prime minister Benjamin Netanyahu, was behind an extensive fiscal plan which included severe benefit decreases, aimed at reviving the economy. He implemented reductions in VAT, income and corporate taxes while reducing welfare and unemployment benefits, arguing that this would encourage people to return to the workplace.
Without a clearly defined diplomatic policy, in particular following the departure of Sharon, the Likud is opposed to negotiations "under fire," and long maintained that late Palestinian leader Yasser Arafat was not a partner for peace talks.
The overwhelming win by Hamas in the recent Palestinian parliamentary elections caused Netanyahu to warn of the dangers of "Hamastan" which was being established in Israel's backyward and compare the group's election to the rise of Hitler.
Ever the pragmatist, however, Netanyahu has in the past negotiated the Palestinian Authority during his tenure as prime minister in the late 1990s, even putting his name to the Wye Agreement, which resulted in a partial Israeli withdrawal from Hebron
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