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JERUSALEM — As Israel's May 29 election day approaches, the ideological gap between Shimon Peres and Benjamin Netanyahu is steadily narrowing.

The polls have remained remarkably consistent for the past several weeks, showing Labor candidate Peres leading Likud rival Netanyahu in the prime minister's race by 4 to 6 percentage points.

But as they both reach out for the crucial undecided voters in the middle of the political spectrum, their rhetoric and policy positions grow increasingly blurred.

Sunday, for example, Netanyahu declared that if elected he would spend no more than some $330 million a year on settlements.

The rest of the settlement budget would have to come from private investment, he said, seeking to blunt Labor's assertions that a Likud government would dissipate the country's hard-won prosperity by building new settlements in the West Bank.

Despite the uncertain outcome of Wednesday's vote, political observers here already are looking toward the morning after election day.

A Netanyahu victory, seasoned observers say, would not be nearly so traumatic to the peace process as the Labor propaganda machine — and a large part of the media — are portraying it.

The Likud leader, who lived for long periods in the United States and later served there as a senior diplomat, would not want to risk sacrificing Israel's current honeymoon with Washington.

Whatever the ideological baggage of the Likud's own hardliners, or that of its rightist political allies, Netanyahu would probably seek to ply a relatively moderate course, knowing that the United States would not want to see the Middle East peace process grind to a halt.

As part of his campaign, Netanyahu has said a government under his leadership would accept the self-rule accords provided that the Palestinians fully honored them, too.

While that formulation is deliberately loose enough to put the entire peace process on hold if Israel's security needs are not met, Netanyahu as premier could well choose to maintain his pragmatic pre-election posture.

With that in mind, speculation is widespread that if Netanyahu wins he may urge the Labor Party to join him in a government of national unity, offering the ministry of defense to Ehud Barak, the former Israel Defense Force chief of staff and current foreign minister.

The assumption in the scenario is that Peres, once beaten, would quickly bow out of public life.

Appointing Barak would enable Netanyahu to avoid ceding the vital defense post to any of his hardliners: Ariel Sharon, Rafael Eitan or Ze'ev "Benny" Begin.

For Netanyahu to choose any one of them would tell the world — especially the Arabs — the peace process is effectively at an end.

Even discounting the national unity option, a victorious Netanyahu could well prove more independent-minded than his critics expect.

He could shake off pressures from the right and name Likud moderate Dan Meridor as minister of defense, and former Likud Knesset Member David Levy, another relative moderate, as foreign minister.

In the same vein, some speculate Netanyahu might move for a quick deal with Syria, one involving deep withdrawals from the Golan Heights — despite his ostensible commitment to hold on to the region forever.

That scenario is based on the "Begin precedent." Menachem Begin, who became prime minister for the first time in 1977, surprised friend and foe alike by negotiating a peace agreement with Egypt that involved a total Israeli withdrawal from the Sinai Peninsula.

Domestically, too, Netanyahu as prime minister may prove less prone to pressures from the religious community than he has exhibited during his campaign.

Netanyahu himself is a secular Israeli with a solid respect for the pillars of constitutionality and liberalism that underpin Western democracies.

Although he declared this week, to the delight of the religious parties, that he would not favor the enactment of a written constitution in Israel, Netanyahu would be unlikely to make the kind of concessions that the Orthodox parties seek, hoping to strengthen their influence in Israeli life.

Civil and human rights groups have long sought a constitution to codify certain basic rights.

A Peres victory, meanwhile, so earnestly desired by dovish and secular sectors of Israeli society as a harbinger of peace and pluralism, is similarly unlikely to pan out quite the way idealists anticipate.

If Peres wins but his party does not gain a large enough percentage of the separate Knesset vote, he would find it difficult to form a coalition that could win the support of a Knesset majority.

A small margin of victory would also mean that Peres won thanks to the votes of Israel's Arab community.

His inability to secure a majority among Israeli Jews inevitably would weaken him politically as he and the Knesset embark on the next four years.

To shore up his political standing and head off the prospect of an abrupt end to his premiership, Peres could actively seek to bring at least some of the Orthodox parties into his coalition.

His predecessor, Yitzhak Rabin, did that in 1992, linking the ultrareligious Sephardi Shas Party with the secularist Meretz Party in an uncomfortable alliance with Labor that held together long enough to effect the breakthrough in the Palestinian peace process.

In order to complete that process and negotiate the permanent-status accord with the Palestinians, Peres would need the widest possible backing.

His recent pledge to submit such a final-status pact to the nation in a plebiscite before signing it would certainly help him woo Orthodox and middle-of-the-road parties into his coalition.

But if Peres, like Rabin before him, finds himself needing the support of the Orthodox parties, dreams of a wholesale reform of state-synagogue relations to advance a pluralistic agenda would have to be shelved once again.

In the foreign policy sphere, a Peres victory might well revive the "Beilin plan" that Peres quickly shelved as politically awkward when it first surfaced in the media earlier this year.

Under that plan, reportedly worked out in a series of meetings between Minister without Portfolio Yossi Beilin and senior Palestinian Authority official Mahmoud Abbas, Israel would countenance the creation of a Palestinian state in much of the West Bank and Gaza Strip.

But the large Jewish settlements built close to the 1967 border would be annexed to Israel, meaning that most of the approximately 135,000 settlers would remain in their homes and remain citizens of Israel.

Beilin has long argued that the three years earmarked in the 1993 Declaration of Principles for the permanent-status negotiations are too long and could prove counterproductive.

Peres, while he was up for election, always rejected that view.

But a Peres who wins the election and does not plan to stand again may think otherwise.