For the Israeli government, keeping peace with its neighbors requires monetary investment in the Palestinian state, Ya'ari said.

"We will not get the support of the Arab countries if we don't try to lift them economically."

Ya'ari said more than one million Palestinian refugees are struggling to subsist while the Palestinian Authority and PLO Chairman Yasser Arafat enjoy the same plush standard of living they had in exile.

"The Palestinians are worse off now than before [the Authority was formed]. The whole economic system is subjugated to a group of [Arafat's] cronies and their system of monopoly and kickbacks."

The journalist also denounced the Arafat regime's abuse of civil rights, which he said ranges from coercion to murder.

"We will have much more pressure to improve civil rights."

Israel should butt out as long as Arafat provides for his state, he said, while acknowledging that Palestinian troubles would spill over the border.

Taking the high road on world opinion, Ya'ari challenged his country to carve out of the peace process a new image for itself.

"Peace cannot just be a redefinition of the neighborhood," he said.

While the Jewish state's political system is Western, he said, "our style of politics is Mediterranean. Our people, language and style of living is Mediterranean. Hopefully, we will restructure Israel as half a Western society and half a Mediterranean society living between both worlds at peace."