Israel may have to resort to new elections to break its political logjam

Hopes have dimmed that Israel's two largest political parties will form a broad-based government that could tackle the nation's serious economic problems. If the incumbent Likud and the left-leaning Labor Party cannot reach agreement on sharing power, many analysts now believe the only alternative may be new elections to try and resolve the stalemate that has existed since the July 23 parliamentary elections.

The political outlook for each party has changed several times since the election. As of this writing, however, the Likud seemed to have the upper hand in negotiations with Labor.

Last week, Prime Minister Yitzhak Shamir and Labor Party leader Shimon Peres had apparently agreed on a power-sharing framework for their parties over the next four years. Under an arrangement leaked to the press Thursday night, Mr. Peres would have served as prime minister for two years, then step aside for Mr. Shamir to serve his two years. The two parties would have split equally 24 ministerial positions.

The arrangement would have broken seven weeks of political deadlock since the July election that left neither Likud nor Labor with enough seats inthe Knesset, Israel's parliament, to form a government.

But by late Sunday, Labor and Likud had broken off all contact and each party was once again avidly courting several small parties in an attempt to form a narrow coalition government.

What went wrong?

It has become clear in the last three days that both Shamir and Peres are leaders under siege within their own parties. Both men see a national-unity government as their best chance to remain at the heads of their respective parties.

But both men face opposition to such an arrangement from powerful factions within their own parties. The factions would prefer instead to see either a Likud-led or Labor-led narrow coalition government.

Within the Labor Party, there was much resentment of Peres for agreeing to rotate the premiership. Labor had painted the election in apocalyptic terms and told the voters that four more years of a Likud government would be disastrous. Labor's left wing felt that if that was true, Labor could not now accept a partnership that would allow a Likud prime minister to return to power within two years.

''It would have been very hard for us to give in to what Peres agreed to,'' said one Labor Party official.

In fact, Labor's long-time ally, the Mapam Party, which holds eight of Labor's 44 Knesset seats, announced soon after the news of an agreement between Peres and Shamir was leaked, that Mapam would leave the Labor alignment rather than join such a national-unity government.

Within Likud, however, hard-liners Ariel Sharon, the former defense minister, and David Levy, deputy prime minister, argued that Shamir had given up too much to Peres.

They wanted the prime minister to extract a promise from the Labor Party that some 27 Israeli settlements now planned for the West Bank, including one in the heart of the Arab town of Nablus, would be built. They also wanted Shamir to hold out for more Cabinet positions for the Likud.

Such demands were rejected by Labor almost immediately.

''This goes beyond highway robbery,'' one incredulous Labor Party member said.

Political analysts here still believe that despite the heated accusations now flying between party leaders, Labor and Likud might yet reach agreement.

''Of all the options, national unity is still the most reasonable option,'' said one centrist observer. ''The two parties are not really very far off on 95 percent of the issues.''

This point of view says that the recent breakdown of talks is just part of the political game of chicken being played to see how many concessions one party can wring from the other.

Peres still has 11/2 weeks left as prime minister-designate in which to form a government. He is expected to push his party hard to join with the Likud in some sort of national-unity government because he fears he will be ousted as party head if he cannot form a government.

The Labor Party announced Monday that the party would not enter into national unity negotiations with the Likud if Peres fails to form a government and President Chaim Herzog turns to Shamir to form a government.

But there is no indication that the Likud takes such a threat seriously.

Instead, Likud leaders are meeting with two religious parties - the National Religious Party, which controls four Knesset seats, and the ultraorthodox Agudat Israel, which holds two Knesset seats, in an effort to win their support.

Labor also is meeting with officials of those parties. The religious parties are in a situation now of being able to extract maximum concessions from each of the large parties because neither of the large parties can form a narrow coalition without the small parties.

All the horse-trading has gone on against a backdrop of an ever-worsening economic situation. Israel's official inflation rate stands at 400 percent, although experts say that the real rate of inflation is probably much higher. Unemployment is beginning to rise and the country is suffering a huge outflow of foreign currency reserves.

But the leaders of the various political parties seem willing to let the economy drift while they scramble for the most advantageous position in the political bargaining.

''When a man knows that he is going to be hanged at daybreak, it concentrates his mind wonderfully,'' wrote Aryeh Rubinstein, a political reporter, in the English-language Jerusalem Post. ''An imminent war can shock a nation out of its normal discord and factionalism. But a mere economic catastrophe apparently cannot.''