News Analysis: Netanyahu is still dogged by scandal that wont quit

By mid-week more bits of information on what had become known as the "Bar-On Affair" continued to become public.

Press reports revealed that three senior prosecutors in the nine-member investigative committee who were to decide Netanyahu's fate believed there was enough evidence to indict him.

But the other members kept the three out of the final deliberations, when it was decided not to indict Netanyahu.

The three wrote a 15-page minority report arguing in favor of his indictment.

That report was expected to help form the basis of an appeal being brought before Israel's Supreme Court by members of the opposition Labor Party. The court is being asked to overturn the decision by Israel's attorney general not to indict Netanyahu.

The court does not often take such actions but political observers agreed that this case was like no other in Israel's history. No Israel prime minister has ever come as close to being indicted as has Netanyahu.

Meanwhile, the prime minister was struggling to keep his coalition together. While it appeared there would be no defections, Netanyahu was being forced to make some political compromises to keep his Knesset majority.

Netanyahu launched a blistering offensive on the domestic and foreign fronts, battling continued fallout from the Bar-On scandal while going on Israeli television to say the Labor opposition won't divert him from his path.

"They refuse to accept the fact the people voted for us and not for them," he said.

"They refuse to accept the fact we are building on Har Homa. They refuse to accept our efforts to protect the unity of Jerusalem," he added.

"They refuse to accept our vigorous opposition to a Palestinian state. They refuse to accept that we are guarding the Golan and not coming down from it."

Even as he talked tough, Netanyahu began appointing some of his staunchest critics in the Bar-On Affair to a ministerial panel on senior appointments — the issue at the core of the scandal — and faced new efforts at reopening investigations into the Bar-On controversy.

Attorney General Elyakim Rubinstein said Sunday he had not found any smoking gun in a 995-page police report that could indict Netanyahu in connection to the short-lived appointment of Roni Bar-On as attorney general.

The attorney general's announcement followed a three-month police probe into allegations surrounding the aborted January appointment of Bar-On, a Jerusalem lawyer and Likud activist.

Bar-On, whose appointment was endorsed at a Jan. 10 Cabinet meeting, stepped down a day later amid charges that he was a legal lightweight.

The Bar-On charges, first raised in an Israel Television report, suggested that Netanyahu's coalition ally Aryeh Deri, head of the ultra-religious Sephardi Shas Party, pushed for the appointment of his ally Bar-On in the hope of getting a plea bargain in his own ongoing bribery trial.

In return, Deri was said to promise support for Netanyahu's then-shaky Hebron redeployment plan.

Netanyahu was not the only one to escape indictments. The attorney general also cited a lack of evidence against Justice Minister Tzachi Hanegbi, and said his file would be closed.

The attorney general, along with state attorney Edna Arbel, have not decided whether to indict Avigdor Lieberman, director-general of the premier's office, who also was allegedly involved in the Bar-On appointment.

But the attorney general did find grounds to indict Deri for alleged breach of trust, fraud and extortion.

In the short run, it is the exoneration of Hanegbi and the looming indictment of Deri that is building pressure on Netanyahu.

Industry and Trade Minister Natan Sharansky, head of the immigrant rights party Yisrael B'Aliyah, and former cabinet minister Ze'ev "Benny" Begin called for Hanegbi's ouster, while Finance Minister Dan Meridor blasted the justice minister's "serious shortcoming" for his role in the Bar-On Affair.

Sharansky said his party and its seven seats, which help cement the ruling coalition, would leave the government if Hanegbi remains.

Meanwhile, Yehuda Harel, leader of the centrist Third Way Party, said Sunday night that the attorney general's report was "very far from an exoneration of the prime minister."

But Netanyahu was moving quickly to appease the discontent. Monday, he began forming the civil service appointment panel, with critics Meridor and Sharansky overseeing it.

That move made it less likely that any party would bolt Netanyahu's government. If one of the parties did leave, Netanyahu would be forced to call new elections — both for prime minister and for the Knesset.

Netanyahu could face discomfort from yet another coalition partner — Shas, which holds 10 Knesset seats. The fact that only Deri is to be indicted brewed enormous resentment among Shas activists, who demonstrated. Some Shas supporters attacked a TV news van, shouting "death to the media."

Netanyahu holds some options. He could make a quick Cabinet reshuffle, including removing Hanegbi, who was closely associated with Bar-On, and perhaps bring in some new faces.

An alternative scenario for the government's future envisions Yisrael B'Aliyah and the Third Way joining forces with the Labor Party in a special Knesset vote to remove the prime minister, which requires a majority of 80 out of the 120 parliament members.

In that event, the Knesset would not dissolve, and a new election would be held only for prime minister.

What steps might be taken in the Knesset were likely to await High Court of Justice action on petitions by Labor Knesset member Yossi Beilin and Meretz leader Yossi Sarid; both were appealing to the court to overturn the attorney general's decision and to then implement the minority police recommendation to indict the prime minister.

In the meantime, Michael Ben-Yair, the former attorney general, formed a new movement that began demonstrating outside the Knesset this week demanding a state commission of inquiry into the Bar-On scandal.

Ben-Yair said only such a commission, led by a Supreme Court justice, could offer the public a full picture of what really happened.

"Without this, the public will lose faith in the government," Ben-Yair said.

As the domestic political maneuvering continues, Netanyahu will likely step up moves on the stalled peace process and seek to enhance the image of business as usual.

"We've got a lot a work ahead of us," he kept telling a CNN interviewer and his tens of millions of viewers, determined to create an image of a back-to-normal administration brushing off a passing cloud. "It's all just politics," he assured the viewers.

But the prospect of continuing domestic political instability in the weeks ahead does not augur well for efforts to get the Israeli-Palestinian peace process back on track.

With his coalition now shakier than ever, he will be more dependent on its hard-line elements, the National Religious Party and the right wing of Likud.

Those elements almost rebelled over the Hebron accord in January, and over the scale of Netanyahu's proposal to transfer an additional 9 percent of rural West Bank land to the Palestinian Authority in the first of three other redeployments.

The rural redeployment never took place, after the Palestinian Authority called it too limited.

The Likud hardliners, totaling 17 Knesset members, have given notice that they will bolt if a second redeployment, slated for September, proves more generous.

Netanyahu, then, seems more hamstrung than ever, and the prospects of a resumption of the peace process are dim.

However, the logic of Netanyahu's complications could produce a radically different outcome.

Beleaguered at home and disparaged abroad in the wake of the Bar-On scandal, Netanyahu might make a dramatic move forward on the peace front as a way to recover his international standing.

That's because the hardliners in his coalition have nowhere else to go, while the Labor opposition can be counted on to back Netanyahu if he takes a generous stand with the Palestinians.

That may not be the most likely scenario. But then these are not ordinary times for Israel.