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The outcome of long wars is determined not on the battlefield, but in the economic sphere, when financial hardships weaken the fighting spirit of the leaders. The awareness of this has slowly begun to filter down to Israelis and Palestinians over the past weeks, as they seek ways to put out the flames and curb economic collapse. It is too early to talk of a peace process: The war is now on hold - until the elections in the United States, the party leadership contests in Israel and the expected announcement of an attack on Iraq. Meanwhile, all sides are trying to gain time.

The Palestinians were the first to tire, and they consequently began to discuss stopping the terror attacks. At first, Israel responded by bringing more military pressure to bear, on the assumption that the enemy was close to breaking point, until the assassination of Hamas leader Salah Shehadeh led to the failure of this tactic. Since then, the Israeli leadership has also begun to exhibit moderation, out of an awareness that the economic crisis spells an end to its political future.

The prime minister, who harnessed all the country's resources to the struggle against Palestinian leader Yasser Arafat, began to realize that a besieged Arafat would eventually drag the Israeli economy to the abyss as well. Speaking last week at the National Security College, Ariel Sharon - who, for a long time, had denied any connection between war and economics - admitted that in order for the economy to grow and for jobs to be created, it was necessary to restore security and quiet and to begin a real political process. The heads of the treasury told Sharon that it would be impossible to bear another year of economic decline and that the time had come to put this at the top of the list of priorities in the decision-making process.

Sharon has called for pushing aside the "murderous gang" of Palestinian leaders, but his government is negotiating a cease-fire with the gang and has also taken off the ridiculous mask of "encouraging an alternative leadership." At first, they gave prominence to the new Palestinian interior minister, Abdel-Razak Yehiyeh, who was supposed to bring security salvation. But it soon became apparent that he was a puppet behind whose back strings were being pulled by the head of the Preventive Security Service in Gaza, Mohammed Dahlan, and the head of the intelligence service, Amin el-Hindi - both essentially representatives of the old guard and confidantes of Arafat.

Yehiyeh created a bad impression with the U.S. administration when he wasted time philosophizing in his lectures about the occupation instead of presenting a practical plan.

The negotiations are being led by Foreign Minister Shimon Peres and Defense Minister Benjamin Ben-Eliezer, but Sharon is involved in every detail. His aides explain that he has to intervene, since he must ensure that the prohibition on holding political talks is upheld. Come now! This week, that very same Sharon sent his bureau chief, Dov Weisglass, to Palestinian Finance Minister Salam Fayad to assure him that the second check of now-unfrozen Palestinian assets was on its way. Fayad, who has not yet learned how to put his hands on the secret funds of the Palestine Liberation Organization, has nevertheless learned to twist Israeli politicians around his finger with the aid of U.S. Ambassador Dan Kurtzer.

Shin Bet security service head Avi Dichter, who is conducting the security negotiations, reports directly back to the prime minister and not to the Labor ministers. Officials in Sharon's bureau deny that Dichter is speaking directly with Arafat, as he did at the conclusion of Operation Defensive Shield.

Then, Amram Mitzna suddenly appeared on the scene. The new candidate for the leadership of the Labor Party is the emissary of businessmen who want to stop the war in order to save the economy. The Haifa mayor, who is untainted by the sins of Oslo, Camp David or the intifada, and who does not have to justify himself, is calling for talks with Arafat as the first step out of the mire. His chances are not clear, but his appearance on the scene has revived the political debate and has presented an alternative to the chorus calling for Arafat's removal.

Ben-Eliezer is now in a flap, despite his aides' disparaging comments about Mitzna; he quickly improvised a tour of the northern command on Monday at midnight, to coincide with the time his rival had called a news conference. The defense minister has also stepped up his contacts with Dahlan on the "Gaza-first" plan, and has urged Sharon to hastily approve the path of the security fence.

The political system has been thrown into the dynamics of early elections and this has had an additional calming effect - at least until it becomes clear when elections will be held and who the candidates are, and when the U.S. president plans to attack Iraq.