1986 in Israel

The political context for 1986 was set by the inconclusive Knesset elections of 1984, in which the Alignment (Labor) won 44 seats and Likud won 41, leaving neither party able to assemble a coalition larger than 54 seats.[7] The two rivals resolved the deadlock through an unprecedented power-sharing agreement: Shimon Peres of Labor and Yitzhak Shamir of Likud would each serve two years as prime minister, with the other holding the combined vice-premiership and foreign-minister portfolio, and then rotate.[7] The arrangement included a ten-member inner cabinet divided equally between the parties, and the government, supported by 97 Knesset members, took office in September 1984.[7]

The unity government inherited a severe economic crisis, including annual inflation that had reached 445 percent in fiscal year 1984.[1] Its emergency response, the Economic Stabilization Program of July 1985, combined spending cuts, tax increases, subsidy abolition, tighter monetary policy, negotiated wage restraints, temporary price controls, and a fixed exchange rate following a large devaluation.[2] The program received $1.5 billion in one-time U.S. assistance over two years.[2] By the beginning of 1986, the stabilization measures were producing results, although their social costs continued to be felt.

The most consequential economic development of 1986 was the continuation of Israel's stabilization. In January, Finance Minister Yitzhak Modai presented a proposed $21.6 billion budget to the Knesset that anticipated almost no rise in gross national product or in the standard of living, which had already fallen considerably during the preceding two years. Defense accounted for 25 percent of the proposed budget.[8]

Also in January, the new Israeli shekel (NIS) became the country's official currency, replacing the Israeli shekel that had been used since October 1980.[9] The currency change coincided with the new monetary framework established by the stabilization program.

Annual CPI inflation was about 20 percent in 1986, compared with 185 percent in 1985 and 445 percent in 1984.[10] A Globes historical index gives the 1986 CPI movement as 19.7 percent, against 185.2 percent the year before.[11] Real GDP grew by 3.3 to 3.6 percent, while private savings reached 21 percent of GNP.[1][2] The government budget moved into surplus by 1986, and the program was also associated with increased reserves and a lower overall trade deficit.[12]

Bank of Israel Governor Stanley Fischer later said that real wages rose by 12 percent during the first three months of 1986, stimulating demand and contributing to rapid growth.[13] The Bank of Israel subsequently raised interest rates to prevent inflation from returning; Fischer argued that the policy contributed to recessions in 1988 and 1989.[13] The stabilization program also increased the Bank of Israel's freedom to conduct monetary policy.[2]

For ordinary Israelis, recovery came with hardship. Contemporary reporting associated the program with increased unemployment and heightened social tensions, particularly between Ashkenazi and Oriental Jewish communities; development towns were especially affected by dismissals and factory closures.[8] Real wages had nonetheless recovered their initial stabilization-program losses by March 1986, under pressure from the Histadrut.[1]

The central political event of the year was the rotation of the premiership. Shimon Peres had served as prime minister since September 13, 1984; on October 20, 1986, Yitzhak Shamir assumed the office, while Peres became foreign minister.[3] The transition implemented the 1984 agreement under which Peres and Shamir would exchange the prime-minister and foreign-minister portfolios during the national unity government's term.[7][3]

Early in the year, with his term still running, Peres pursued what contemporaries called the "Jordan option," an attempt to open peace negotiations with Amman. Reports from January 1986 noted that Israel and Jordan had not begun direct negotiations and that Foreign Minister Shamir characterized the contacts as only "a few indirect contacts."[8] Obstacles included the composition of a joint Jordanian-Palestinian delegation, Jordan's desire for PLO involvement, and disagreement over the appropriate international forum. Peres was unwilling to negotiate with people he regarded as proponents of terrorism, while Shamir was described as more skeptical about both the Jordan option and King Hussein's intentions.[8]

On September 11–12, Peres met Egyptian President Hosni Mubarak in Alexandria in one of the closing diplomatic acts of his premiership. Shortly before the summit, Israel and Egypt signed a Taba arbitration compromise; the Israeli government approved it on November 30, and international arbitration opened in Geneva on December 10.[14] Their joint communiqué reaffirmed both countries' commitment to peace, called for 1987 to be a year of negotiations, and was followed by the appointment of an Egyptian ambassador to Israel.[14] Both leaders supported an international conference, although they differed over the PLO's role and the Palestinian question.[14]

A December 1986 American Jewish Committee memorandum referred to a recent meeting with "Prime Minister Shamir," providing a contemporary confirmation that the transition had taken place.[15]

One of the most celebrated moments of 1986 came on February 11, when Soviet Jewish refusenik Natan Sharansky arrived in Israel after nearly a decade of Soviet imprisonment.[4] His release came through a prisoner exchange. Before his sentencing, Sharansky had told the court: "I have nothing to say – to my wife and the Jewish people I say, 'Next Year in Jerusalem.'"[4]

His wife, Avital, had led an international campaign for his freedom that drew extraordinary support. More than 2,400 American scientists, including 13 Nobel laureates, signed a pledge not to cooperate with the Soviet Union until Sharansky was released.[4] Sharansky later described February 11 as "a very dramatic day," beginning in a Soviet prison and ending at Ben Gurion Airport and the Western Wall in Jerusalem.[16] His release helped galvanize the wider movement to free Soviet Jewry.[4]

Israel's diplomatic horizon expanded significantly during 1986. On January 17, Israel and Spain established full diplomatic relations. Spain thereby officially recognized the State of Israel and became the last Western European state other than Vatican City to establish formal ties.[5][17] The formalities were completed in The Hague, where Prime Ministers Peres and Felipe González met and made plans to open embassies.[17]

The establishment of relations followed years of discreet Israeli efforts after Francisco Franco's death in 1975 and came despite pressure from Arab states and policy differences over the Palestinian question.[1] Before formal ties, the countries had quietly cooperated on counterterrorism, while Israel's Labor Party maintained close links with Spain's Socialist Party.[1] Spanish Foreign Minister Francisco Fernández Ordóñez emphasized that recognition did not change Spain's positions on the Palestinian issue or territories occupied since 1967.[17] The Israeli Embassy in Spain describes the relationship as the foundation for later bilateral cooperation in fields including culture, science, technology, and transportation.[18]

Israel also made progress with Eastern Europe. Poland became the first Soviet-bloc country apart from Romania to restore low-level diplomatic relations with Israel after the 1967 break.[19] By the fall of 1986, Israel's interest section was headed by Mordechai Bar-Zur in the former Israeli Embassy building in Warsaw, while Polish representatives operated from the PKO Bank in Tel Aviv. Both sides' senior representatives held "second secretary" diplomatic status.[19] The rapprochement was accompanied by renewed cultural and tourism exchanges, including visits by ballet, opera, and theater companies.[19] Israeli and Romanian officials met in August, Bulgaria invited Shulamit Shamir to visit, and trade and tourism with Hungary improved during the year.[1]

On August 17, Israeli and Soviet representatives met in Helsinki in the first contacts between the two countries since the Soviet Union broke diplomatic relations following the June 1967 war.[1] The talks did not restore formal relations, but they indicated Soviet interest in improving ties.[1] The Soviet side raised consular matters and Soviet property in Israel, including Russian Orthodox Church holdings. Israeli representatives pressed for increased Jewish emigration, a change in Soviet policy toward Soviet Jews, and an end to anti-Zionist publications.[1] Israel interpreted the initiative as connected to Moscow's interest in an international peace conference and greater influence in the Middle East.[1]

The Soviet Jewry Education and Information Center, representing approximately 170,000 Soviet Jews living in Israel, lobbied the government not to restore full diplomatic relations until Jews were permitted to emigrate freely.[1] The Soviet Union continued to support the PLO and Palestinian groups during the period of renewed contacts.[1]

The American-Israeli strategic relationship deepened on several tracks during 1986. In January, the United States announced the purchase of Israeli-made remotely piloted reconnaissance aircraft.[20] On May 6, Israel signed a secret agreement to join the research and development programs of the U.S. Strategic Defense Initiative (SDI), becoming the third participating country after Britain and West Germany.[20][21] The Congressional Research Service connects that cooperation to the subsequent development of Israel's Arrow anti-ballistic missile.[21]

In July, Defense Minister Yitzhak Rabin publicly disclosed cooperation between U.S. and Israeli special anti-terrorist forces.[20] The United States also authorized approximately $70 million for prepositioning military supplies in Israel and agreed to support construction of a Voice of America transmitter there.[20] In August, the chronology recorded a second batch of twelve Kfir C-1 aircraft under a U.S.-Israeli lease arrangement.[20]

Israel also agreed to return $51.6 million of the $1.2 billion in U.S. economic assistance it had received for fiscal year 1986, helping the United States meet budget-cutting requirements under the Gramm-Rudman law. Israel was not legally required to return funds that had already been disbursed, and Prime Minister Peres personally offered the gesture.[17]

On October 16, 1986, Israeli Air Force navigator Ron Arad, aged 28, and pilot Yishai Aviram ejected from their F-4 Phantom II during an operation over southern Lebanon.[6][22] Aviram was rescued, but Arad was not found. Israel believed that he had been captured by the Shia Amal movement and possibly later transferred to Iran.[22]

Amal demanded $3 million and the release of 200 Lebanese and 450 Palestinians in exchange for Arad, but negotiations broke down.[6] Signs of life were reported during his first two years in captivity, with the last dated May 5, 1988; what happened afterward remains unknown.[22] Arad remained officially listed as missing in action.

Mordechai Vanunu worked as a technician at Israel's Dimona nuclear facility from 1977 to 1985 and took photographs inside the facility before leaving his job.[23][24] He converted to Christianity in Sydney in 1986, where church officials learned of his background and connected him with journalists.[25] The London Sunday Times published a report based on his material in October, presenting estimates that Israel possessed between 100 and 200 nuclear warheads and was developing neutron and thermonuclear capabilities.[23] Israel had not confirmed whether it possessed nuclear weapons, and not all governments accepted the estimates.[23]

Vanunu was lured from London to Rome and brought to Israel in a covert operation, but approved sources conflict over whether his abduction preceded or followed publication.[25][24] His trial opened in Jerusalem in December 1986.[26] He was ultimately sentenced to 18 years in prison for leaking classified information and espionage.[27] An Israeli government memorandum records Vanunu's stated anti-nuclear motive while framing the case as a prosecution for security offenses.[26]

The Bus 300 affair, originating with the killing of two captured Palestinian bus hijackers after Israel Security Agency personnel took them into custody in 1984, reached its legal and political conclusion in 1986. In the spring, senior ISA officials Reuven Hazak, Rafi Malka, and Peleg Raday told Prime Minister Peres that ISA chief Avraham Shalom had ordered the killings and coordinated false testimony.[28] Peres declined to act, and the three officials were dismissed. They then provided evidence to Attorney General Yitzhak Zamir, who opened a criminal investigation.[28]

In June, President Chaim Herzog, acting on the government's recommendation, pardoned those involved before prosecution, and Shalom resigned.[28] Papers disclosed during a Supreme Court appeal showed Shalom stating that his actions had been "authorized and approved." The court upheld the pardons on August 6, 1986.[28]

The affair also tested Israel's press-censorship system. The short-lived daily Hadashot published, without submitting it for censor approval, a front-page photograph showing Shin Bet personnel escorting two surviving hijackers from the seized bus. The image demonstrated that the captives had survived the original operation.[29] Defense Minister Moshe Arens ordered the newspaper closed for several days because the photograph showed the faces of Shin Bet personnel.[29]

A Washington Institute analysis identified an increased frequency of Islamic Jihad terrorist attacks against Israeli targets after the Jibril prisoner exchange of May 1985.[30] It recorded a February 1986 grenade attack in a Gaza market, the fatal stabbings of two Israeli taxi drivers in late September and early October, and an October grenade attack against members of the Givati Brigade at the Dung Gate in Jerusalem's Old City.[30] Two Islamic Jihad members were later convicted of the taxi-driver murders and sentenced to life imprisonment.[30]

In June 1986, violence between militant religious and secular elements in Israeli society prompted a joint public condemnation by leaders of major American Jewish religious bodies.[31] Their statement criticized provocations against religious sensibilities but said these did not justify intimidation or destruction of property by religious zealots. It also condemned reprisals against synagogues and institutions of Torah study.[31] The leaders called for moderation, tolerance, and mutual respect.

The November 1986 public disclosure of U.S. arms sales to Iran and the diversion of proceeds to the Nicaraguan Contras drew Israel into a contested public controversy. A December American Jewish Committee memorandum listed as allegations under review claims that Israel had manipulated U.S. policy, overcharged Iran, helped establish Swiss bank accounts, and participated in transferring money to the Contras, while explicitly noting that these claims had not been proven.[15] A December 7 commentary by Rabbi Marc H. Tanenbaum argued that Israel's involvement had been intended to help save three American hostages and urged that investigations establish the facts before judgments were rendered.[15]

Separate reporting stated that individuals with ties to Israel were arrested in 1986 while attempting to arrange $2.6 billion in arms sales to Iran. The report did not establish that the proposed sale was completed or that those involved were acting as Israeli government officials.[32]

In 1986, Communications Minister Amnon Rubinstein placed Israel's first cellular telephone call to Prime Minister Shimon Peres, using a handset described as resembling a landline more than a mobile phone.[33] That year, Pelephone, Israel's first cellular operator, began selling Motorola car phones for 3,900 shekels, with a 1,000-shekel connection fee, a 100-shekel monthly charge, and calls costing 90 agorot per minute.[33][34] The portable DynaTAC handset, nicknamed the "Banana," sold for 7,000 shekels.[33]

Several developments of 1986 had consequences extending beyond the calendar year. The stabilization program established a lower-inflation framework and increased the Bank of Israel's freedom to conduct monetary policy, although later high interest rates contributed to an economic downturn.[2][13] Strategic Defense Initiative cooperation contributed to the Arrow missile program.[21] Other events remained unresolved: Ron Arad continued to be listed as missing in action, while Vanunu's prosecution and imprisonment extended the nuclear-disclosure affair into subsequent years.[6][27]

Approved sources give conflicting chronologies for the Vanunu affair. Encyclopaedia Britannica dates the Sunday Times article to October 5, 1986, and places Vanunu's abduction five days earlier.[23] A Jewish Virtual Library biography instead dates publication to October 26 while stating that he was abducted on September 30 "shortly after publication," an internally inconsistent sequence.[24] An Israeli government memorandum also gives October 5 as the publication date.[26]

Verified inflation figures vary only slightly: an economic table gives 19.6 percent for 1986, while the Globes historical index gives 19.7 percent and a Bank of Israel publication rounds the figure to 20 percent.[2][11] A separate Israeli Foreign Ministry history page gives 185 percent for 1986, in direct conflict with those figures.[35]

Leadership sources also differ in precision. A World Jewish Congress account says Shamir took over in September 1986, whereas the U.S. State Department's Office of the Historian records the transition on October 20 and gives September 13, 1984, as the beginning of Peres's premiership.[36][3] The October 20 date is therefore used throughout this article.