Sharon desperately wants to build a strong coalition that does not depend on extreme right-wing and religious parties. With their demands for more spending on religious education and Jewish settlements, these groups have often been responsible for bringing down Israeli governments. Instead, Sharon is angling to team up with the Labor Party, which won 19 seats in the election, and Shinui, a centrist-secular party that did surprisingly well in the ballot by nabbing 15 Knesset spots. Although Labor's new leader, Amram Mitzna, has vowed not to join a Likud-led government, he left the door open for negotiations after meeting Sharon on Feb. 17. Shinui's leader, Tommy Lapid, has said he's willing to join. "Sharon needs a broad-based coalition to bring about dramatic changes on both the economic and political fronts," says Gerald Steinberg, a political scientist at Bar Ilan University near Tel Aviv.
The pressure on Sharon to start the economy is so intense that he may be willing to come up with enough concessions to get Mitzna on board. The budget deficit has ballooned to close to 5% of gross domestic product over the past two months, and the markets have been pummeling the Israeli shekel. Economists say the government must slash the budget by up to $3 billion, partly by laying off public sector workers--hard to do when unemployment is already 11%. To carry out such a program, Sharon wants former Bank of Israel Governor Jacob Frenkel to be Finance Minister. Frenkel, an international finance star in his own right, is known for killing off Israeli inflation in the 1990s. His appointment would boost investor sentiment. Sources say that Frenkel is willing--but only if Labor is part of the coalition.
Yet before he joins a unity government, Labor's Mitzna wants a Likud pledge to pull back settlements from the Gaza Strip and divert some funding from settlements to infrastructure and social needs. It would be an amazing turnabout if Sharon gave in on settlements. Still, he may be pressed to cede some ground, since the Palestinian crisis is steadily eroding the economy. Sharon met with Palestinian National Authority Finance Minister Salam Fayad on Feb. 15. And his aides have been been holding talks with Palestinian officials on implementing a gradual cease-fire. "It seems [Sharon] has finally come to understand that he will preside over an economic catastrophe if the situation vis-à-vis the Palestinians remains hopeless," says Henry Siegman, senior fellow on the Middle East at New York's Council on Foreign Relations. Washington may also make some Israeli movement on the Palestinians a condition to granting Israel's request for $12 billion in new loan guarantees and military aid, analysts say.
It's not just Sharon who's being pressed to team up with his rivals. "There will be pressure [on Labor] to have a strong unity government to face any uncertainties brought about by [a U.S. invasion of Iraq]," says Edward S. Walker Jr., president of Washington's Middle East Institute and former U.S. ambassador to Israel. If Labor agrees, the world will watch to see if this reformist government truly reforms. North Korea's blustery threats regarding nuclear weapons and missile tests have brought about a sea change in thinking among defense officials in Tokyo. On Feb. 17, Japan's Defense Agency said it would work with the Pentagon to conduct preliminary missile-defense tests in Hawaii for a two- year period starting in 2004. A full-blown system, jointly funded by the U.S. and Japan, could be the next step, depending on the test results and the costs involved. Such a system most likely would be employed on naval warships.
That news has already drawn vitriolic statements both from Pyongyang and Beijing, which view any upgrade in Japanese defense capabilities with grave suspicion, given its wartime history in the region. In Japan, though, there is little political or public resistance to the move. Japan has been living with the threat of a missile attack from North Korea since 1998, when the country test-fired a Taepodong-1 missile over the archipelago.
What worries defense officials is that Tokyo has no effective means to counter a missile attack from North Korea. Japan's war-renouncing Constitution rules out a preemptive attack on missile launch sites. Self defense is another matter, but once an attack got under way, Japan F-15 fighter bombers would lack the firepower and precision-guided weapons to strike back in a meaningful way. Japan plans to launch spy satellites this year to monitor North Korea. But teaming up with the U.S. on missile defense is looking like the best option for Tokyo.