Israel’s Labor Party Sees Netanyahu Misstep on U.S. Spat

Israeli Prime Minister Benjamin Netanyahu’s election rivals from the Labor party said he carried disputes with U.S. President Barack Obama too far and gave the impression of favoring Republican candidate Mitt Romney.

“We criticize Netanyahu vehemently for a grave strategic mistake, for being seen as intervening in American politics,” Isaac Herzog, who holds the No. 2 position in the opposition party, said in an interview in Bloomberg’s Tel Aviv office.

Netanyahu’s occasionally contentious relationship with Obama and his overall handling of the U.S.-Israel strategic alliance are an issue in the Israeli political campaign ahead of Jan. 22 elections. The U.S. and Israeli leaders have sparred publicly over how best to advance the stalled peace process with the Palestinians and to contain Iran’s nuclear program.

Once the dominant force in Israeli politics, producing such leaders as David Ben-Gurion, Yitzhak Rabin and Shimon Peres, Labor now holds only eight parliamentary seats in Israel’s 120- seat Knesset. The party aims to regain its former prominence by stressing economic and social issues, and accusing Netanyahu of isolating Israel internationally.

Israel was a prominent topic in the final U.S. presidential candidates debate on Oct. 22, with Obama and Romney clashing over the state of relations.

“The president said he was going to create daylight between ourselves and Israel,” Romney said, referring to a report that Obama had privately told Jewish leaders early in his presidency that he was staking out some independence from Israeli policies in order to bolster U.S. credibility with Arab states.

Taking Sides

Obama said “we have created the strongest military and intelligence cooperation between our two countries in history,” and pointed to the largest-ever joint military exercise underway this week.

“One of the criticisms some of us have of Netanyahu is that, perhaps for the first time, a prime minister seemed to have taken sides at a time when Israel and the American administration need to be fully aligned,” Erel Margalit, a venture capital investor in technology companies who joined Labor last year, said in the same interview.

Margalit criticized a Romney fundraiser attended by U.S. gambling magnate Sheldon Adelson, a Netanyahu supporter, held when the Republican candidate visited Jerusalem in July. Obama also targeted the fundraiser during the presidential debate, saying that when he was in Jerusalem as a presidential candidate in 2008 he visited the Yad Vashem Holocaust memorial rather than meet potential donors.

Retooled Party

Herzog, 52, and Margalit, 51, are hoping a Labor party resurgent in opinion polls can challenge Netanyahu’s Likud party over the next three months. Former party leader Ehud Barak split from Labor last year after deciding to stay on as defense minister in Netanyahu’s coalition, taking with him five Knesset seats to form the Independence faction.

Barak’s replacement as Labor leader, former radio journalist Shelly Yacimovich, has retooled the party by shifting its primary focus from being an advocate for Israeli-Arab peace, toward social welfare issues. Yacimovich backed last year’s street protests calling for lower housing and food prices.

The party’s strategy seems to be paying off, with a poll in the Haaretz daily newspaper on Oct. 11 projecting Labor winning 19 seats, second only to Likud’s 29.

“Israeli society today, like all politics around the world, has shifted to new topics,” said Herzog, a lawyer by profession and son of former president Chaim Herzog. Labor “has to regain its strength as a social-democratic party,” rather than just push for a peace agreement with the Palestinians, he said.

Economic Growth

In focusing on economic issues, Labor will have to counter the fact that Netanyahu, working together with Bank of Israel Governor Stanley Fischer, avoided the most serious consequences of the developed world’s financial crisis. The Central Bureau of Statistics estimates that Israel’s economy will grow 3.5 percent this year, while unemployment for August stood at 6.9 percent and September’s 2.1 percent inflation rate was about at the midpoint of the government’s target range.

“The message of economic growth that trickles down to the people, and doesn’t stay encapsulated in a very narrow part of society, is what we bring,” said Margalit, founder of Jerusalem Venture Partners. He said Labor’s message that it can accelerate growth by pursuing policies that lower regional tensions and may ultimately lead to a peace deal will appeal to voters.

While Labor is aiming to draw more blue-collar voters from the Likud’s traditional working-class constituency, its leadership does not exclude the possibility of joining its rival in a future national unity government.

“We don’t want to be a ‘fifth wheel’ in any government,” said Herzog. “We want to be the ones to form the next government, but we don’t rule out any options.”

To contact the reporters on this story: Calev Ben-David in Jerusalem at cbendavid@bloomberg.net;

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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