Israel's Economy Troubles Likud

IN Jerusalem's teeming Mahane Yehuda market, a traditional stronghold of noisy Israeli nationalism, there are mutterings of dissent.

"The economy is in a bad state and getting worse every day," says Shabtai Zizi, who works with his brother in a fishmonger's stall. Mr. Zizi, a Sephardic Jew of Iraqi origin who lives with his family in a working-class suburb of Jerusalem, exemplifies the core of voters who have traditionally supported Israel's ruling Likud Party. But as the June 23 elections approach, he is having his doubts.

"I want to vote, but I haven't decided yet," he says. "There's a good chance I'll change, maybe to Labor."

In right-wing strongholds up and down the country, once loyal supporters of Likud and Prime Minister Yitzhak Shamir are debating whether or not to desert. If enough of them do, they could help to end 15 years of Likud-led government.

"If Labor could get even 35 percent of those votes, that would make the difference," says Gadi Wolfsfeld, a political scientist at Jerusalem's Hebrew University.

Mr. Wolfsfeld says Labor's leadership - the uncharismatic but popular Yitzhak Rabin - has made it easier for people to contemplate switching. Mr. Rabin, a former Army chief of staff who led Israel to victory in the 1967 Six-Day War, is emphasizing his ability to maintain Israel's security. Shabtai Zizi agrees that Rabin makes the difference, but his brother Motti is not swayed.

"I'm staying with Likud because I'm sure Labor won't make it any better. They'll only make it worse," he says.

The one thing the brothers agree on is the huge amount of money being spent by the parties on campaign commercials.

"Three hundred million shekels ($125 million) is wasted on election propaganda," says Shabtai Zizi. "They should give it to the people who need it." The list of the needy is growing every day. Unemployment, at 11.5 percent, is at a 20-year high, and among recent immigrants the rate is much higher.

Worsening employment prospects have resulted in a sharp drop in immigration since the start of the year.

Without the boost provided by new arrivals, housing, the mainstay of last year's increased economic activity, has also slumped.

"The main weakness of Likud is the fact that we have a very high rate of unemployment," says Gad Yaacobi, chairman of Labor's committee on social and economic affairs. Mr. Yaacobi and his fellow Labor strategists are convinced that Israelis will draw a direct link between unemployment, immigration, and the money being spent by Likud in the occupied territories.

"Many people believe that we'll be able to save most of the investments in the territories and allocate them in Israel for employment, housing and education," he says.

Freezing settlements, as Labor promises to do, Yaacobi says, will save almost all of the $1.25 billion he estimates is being spent in the West Bank and Gaza Strip. There will be fringe benefits too, such as renewed American willingness to provide $10 billion in badly-needed loan guarantees for immigrant absorption.

Likud is defensive on economic matters, saying the unprecedented wave of immigration from the former Soviet Union in the past three years has placed an unusual burden on the country.

Likud's campaign spokesman, Yossi Ahimeir, says Labor's data on expenditure in the occupied territories is "exaggerated" and politically motivated.

"It's just incitement of one population against another," he says, adding that he hopes negotiations with Washington over the loan guarantees - frozen because of the Bush administration's opposition to settlements - will be resumed after the elections.

"In the long run, we expect the Americans will understand our position," he says.

IN Mahane Yehuda market, Likud supporters are making other connections.

"Most of the money is going to the new immigrants, to fighting the intifadah (uprising)," says 22-year-old Rafi. As an 18-year-old during Israel's last election, he voted for Likud.

But he feels let down by the party that promised him a job when he came out of the Army, a promise it failed to deliver.

Rafi is torn between the economic promises of Labor and the tough stand on security represented by the hard-line Moledet Party, which advocates the "transfer" of Palestinians out of the occupied teritories.

Polls show many young Israelis have rejected the main two parties altogether, and are looking to the far left or right, not necessarily for ideological reasons but because parties like the dovish Meretz Bloc, or the hawkish Tsomet, stand for clean government and social concern.