Only days after they had pronounced it a lost cause, the leaders of Israel's two largest parties appeared close to agreement Wednesday on the framework for a national-unity government.
The main impetus for such a government is the nation's deepening economic crisis. It is felt that only a government composed of the Likud and Labor parties - which between them hold 85 of the Israeli parliament's 120 seats - can take the drastic measures needed to cool a blistering 400-percent inflation rate.
It is also believed that a Labor-Likud government may be able to extract Israeli forces from southern Lebanon, where the Israeli Army has remained since it invaded Lebanon in 1982. Both parties agree that the occupation, which is unpopular here and has been harshly criticized abroad, is draining the nation's economy. But they have not agreed on a timetable for pulling out.
It is also acknowledged, however, that a government combining the incumbent right-wing Likud and left-leaning Labor will almost certainly take no new steps toward restarting the stalled Mideast peace process. The two parties remain deeply divided on a framework for negotiating peace with Jordan.
In fact, outgoing Prime Minister Yitzhak Shamir, in arguing with fellow Likud leaders that they should accept a national-unity government, is said to have told them that he did not believe the issue of whether Israel should trade part or all of the West Bank would come up ''in the foreseeable future.'' Israel has occupied the West Bank since the 1967 Arab-Israeli war.
The Likud has long maintained that Israel will retain sovereignty over the West Bank, while Labor has indicated it is willing to negotiate with Jordan's King Hussein to give back part of the territory in return for peace.
Hard-liners supporting each party predict that the issue of peace negotiations with Israel's Arab neighbors and the question of whether to continue building Jewish settlements on the West Bank will prove insurmountable problems for a national-unity government.
''A government that has within it two fundamentally different views and at the same time is a government of equality can never function, because each side has the potential of vetoing the other side,'' says Victor Shemtov, head of the socialist Mapam Party.
Mapam, which has been aligned with Labor since 1969 and holds six of Labor's Knesset (parliament) seats, will break with the party rather than participate in the national-unity government, Mr. Shemtov says.
Mapam hopes to unite with other, smaller leftist parties to form a new force in Israeli politics that will be dovish and ideologically oriented, Shemtov says. Such a party, he says, would counterbalance the rightist parties that gained strength in the last elections.
On the right, the nationalist Tehiya Party was threatening to break with Likud because, in Tehiya's opinion, Shamir had agreed to a virtual freeze of settlements on the West Bank. Tehiya has pushed hard since its formation in 1981 for unbridled Jewish settlement on the West Bank, says Shmuel Lewin, aide to Tehiya Knesset member and Cabinet minister Yuval Neemen.
''In the opposition, we can deter the Likud from lots of things, if there's some sort of concessions being made,'' Mr. Lewin says.
At time of writing, only technical details of the government - exactly who would get which Cabinet portfolios - remained to be worked out, observers close to the negotiations said.
But the parties apparently had agreed that Labor leader Shimon Peres will be prime minister for the next two years. Yitzhak Shamir will serve as deputy prime minister and foreign minister under Mr. Peres, then succeed him as prime minister, according to news reports.
Labor and Likud will divide the Cabinet portfolios equally, with former Labor Prime Minister Yitzhak Rabin getting the powerful Defense Ministry portfolio for the entire four-year term of the government.
The agreement was not popular either within Labor or within the Likud, but was seen by each party as the only way out of the political deadlock that has existed here since the parliamentary elections left Labor with the largest number of Knesset seats (44), but without enough seats or potential partners to form a government.
Labor and Likud have spent much time in the last weeks maneuvering to block each other from forming a narrow government. Each would have preferred to form a government without the other, but neither could attract enough of the 13 small parties that won Knesset seats.
Peres was asked to form a government by Israeli President Chaim Herzog a month ago and has 10 days left before his mandate is up. It is widely believed here that Peres's political career would be over if he could not form a government. Peres has been the head of Labor during its seven years in the opposition, including its defeats in two elections.