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(Prime Minister Binyamin Netanyahu describes Israel's relations with the United States as 'excellent,' emphatically insists he will not agree to a Palestinian state, and makes no promises to withdraw from Lebanon. He also says, in an interview with Jeff Barak and Danna Harman, that he needs one more term to bring peace.)

Q. For the sake of good government, why don't you openly say you won't deal with Aryeh Deri?
A. For the sake of good government I think we should follow the law, the rule of law, and Israel is a country governed by law. The District Court said very clearly that until and unless Deri's conviction is upheld by the Supreme Court, he can continue his political activity. I don't think we should engage in standards arranged by politicians, on a passing fancy, but follow what the court says.

Q. But the law isn't the only issue here. Elyakim Rubinstein said in his report in the Bar-On Affair: "Problems of normative behavior are not necessarily criminal." It's not just an issue of the rule of law.
A. But who determines normative behavior? You? My political opponents? This is a very convenient ground in which politicians can sling accusations at one another, but the only way, the only standard that can govern political participation, or the exclusion of political participation, is the courts.

Q. Before you were elected, you said that you would privatize 50 companies in your first term, and that 50 was a modest goal. You haven't succeeded here and the major utilities - electricity, water, oil refineries, El Al, Zim, Egged - have not been privatized. There has been no Thatcherite revolution here.
A. That's preposterous. It's absurd. Let me show you a few charts. The extent of privatization, the dollar value, is enormous. The dollar value reaches about NIS 13 billion, which is unheard of in Israel's history. It's more than what was done by the previous government and it has also paved the way for the completion of privatization, the government's leaving most of the governmental companies, including the utilities. That's next.
Indeed, I'd intended by the end of the term to finish the privatization of the electricity company. It's the bookend system. You deal with the easy one, then you go to the big one at the end, and then you collapse the others, or deal with the other companies in the middle...

Unfortunately the elections intervened. If I'd have stayed to the year 2000, you probably would have had the electricity company, as well as El Al, as well as other companies...

Q. El Al has a problem with Shabbat...
A. It can be overcome.

Q. How?
A. For one thing by having a religious transport minister. That's probably the best way to solve the problem.

Q. You've had some successes in the economy... but the problem is growth. It's slumped from 6.8% in 1995 to 2% last year, which is a negative growth. Also, it's the public sector that's creating the most jobs. You haven't shrunk the public sector.
A. The reason the growth rate shrunk by half, three months before we came into office, was because of the deficit. The huge deficit, almost 5% of the GDP, is the greatest obstacle to growth for the simple reason that the government then has to go to the banks, sucking up all the credit in the banking system and leaving very little credit for the private sector. Therefore the private sector has to shrink, being short of cash and credit, their activities, and you have the inevitable unemployment, a year later, half a year later. That always happens.

It took us quite a while to shrink this deficit, but once we have, the prognosis is actually quite good.

Q. Nothing has moved in either tax reform or capital- market reform. Former finance minister Yaakov Neeman didn't get your backing for tax reform.
A. Again we had elections, which came in early.... If you want to ask the question, not the contentious attacks by my critics, but the objective question: is the Israeli economy moving in the right direction, then the only thing you can ask is whether there is capital inflow or not. That is the most important question you have to ask. Is money coming into the economy or is it leaving the economy? Robust economies that have growth potential, that are being managed well, that have a technological potential, bring in money. Economies that move in the other direction will have money depleted from them. It is a fact that we have had record foreign investment in Israel, real investment, not speculative or financial investment in a bank account, but the buying of real assets in companies and equipment and plants.

It is the greatest increase, way, way over what was under Labor. The great achievement of Labor was $1 billion. We have $2.1b., we have twice that within three years....

The stock market is at a record high, consistently growing for the past two years because... there's been an enormous change in Israel. We haven't finished everything we have to do, but Israel is clearly moving as rapidly as we can to the free-market and open economy.

In every shift from an old socialist system to a modern, technological free-market economy, you have temporary unemployment, but this unemployment is driven primarily by the influx of foreign workers, especially illegal foreign workers.

Q. Why are we facing early elections now? Why did your government break up?
A. Because I refused to cave in. Because I refused to cave in to the demands of the Left to give up on the principle of reciprocity and implement Wye without regard to Palestinian implementation. And I refused to cave in to the demands from those on my right, who demanded that I tear up the Wye accords.

I did exactly as I said. I said I would take a political risk but would not take a security risk when I went to Wye. And indeed I came back with a good agreement that I'm very proud of. The reason it's so good is that it has reciprocity built into the stages of the implementation of the accord.

The fact is that neither the Left nor the Right could accept this accord for what it was.... The Left essentially made a pact for political purposes with some of the people on the Right and brought us down, in contravention to their professions of peace.

Q. Where is the Likud today? In a sense you've brought it to the center. You not only followed through on the Hebron Agreement....
A. I brought it exactly to where I said I would... I've been very consistent. I took a decision before the elections in '96. I said I would keep the Oslo Accords but insist on reciprocity and minimize, under the accords, minimize the damage to Israel and maximize the benefits.

Q. Have you turned the Likud into a party of territorial compromise?
A. Not territorial. I didn't try to do that... The Likud was always a party that believed in the continuity of contracts. You don't overthrow international agreements achieved by your predecessors, even if you don't like them. And so we've kept the agreements.

I've kept my word to the voters too, on every point. I said I'd stress security and fight terrorism and bring down terrorism. I did. Not altogether, you can't eliminate it altogether. I cannot tell you there won't be an attack tomorrow.

I said I would introduce reciprocity into the peace process, and I did. I said I would implement it as long as they would implement, and I did. And I said that I would move forward to a final settlement negotiations, which I'm prepared to do, right after the elections.

Q. You said before you were elected, you would make good relations with the United States a cornerstone of your policy. Would you describe our relations with the United States as good?
A. I would describe them as excellent. I would also say we have some disagreements. We have always had, since 1967, on the question, for example, of settlements. It's no secret.

In this term, I was very glad to sign the Strategic Memorandum with President Clinton. For the first time, the United States committed itself to assist Israel in finding answers to ballistic and other dangers that threaten us. Also the United States is committed to enhancing Israel's deterrent. That was never ever said in the past....

Economically, America is investing here more than at any time before. Most of the $2b. is from American companies that are coming in.

The Congress upheld my position 98 to 1 that Arafat must not unilaterally declare a state with Jerusalem as its capital, and I'm also pleased with the position the United States took recently on the same question... which they did in a measured and careful way.

The answer is that the relationship is very good because it's a stable relationship between two peoples and two cultures that have many common values.

Do we have occasional differences with the US? Of course we do. Would they prefer to see a more, how would you say it, a more pliant government here, I assume some would, but I don't want to speak on behalf of the administration.

But it's no secret there are differences in the way we view our national interests and our security requirements. The view from the Potomac is very different from the view from the Jordan, from the Yarkon. I'm responsible for Israel's interests and I will uphold them. By the way, the Americans respect that.

There is some concern that there is less understanding in the world for Israel's position.

If we adopted a leftist position, everybody would pat us on the back... The Left's view of engaging in international relations is the guy who has a pocketful of money, goes to the street corner and begins to give out dollar bills to every guy. As long as people pat him on the back, he thinks he's not isolated and in a wonderful position. The problem with that is that very soon you run out of dollar bills and people keep asking, demanding more, now that you've habituated them that you give without let- up....

We try to keep our pockets as full as possible although we realize that in any peace negotiation you have to make some concessions and we have.

The United States has not resurrected UN Resolution 181, they have made it very clear that the relevant UN resolutions are 242 and 338, for good reason because 181 belongs to the dustbin of history. The Arabs can't come back 50 years after the creation of Israel and try to resurrect an obsolescent resolution that they opposed in the first place.

The fact that the Europeans are willing to do that [accept Resolution 181] is a measure of the fact that we're getting closer to final settlement negotiations. The European position has been, unfortunately, very bad for Israel, for many, many years. And that is a problem, I think, of some neglect and it's also a problem of a different cultural outlook.

The European position on Israel is formed primarily by Europe's colonial experience, in the way they, and many, view our being here in Judea, imagine, in Judea and Samaria, as being in some foreign land, akin to a European colonial holding overseas.

There are two problems. One there's no sea, and No. 2, it's part of our homeland to which we've been attached for 3,500 years...

This is why America is so different, it does not have a colonial experience and it tends to view Israel through the biblical prism of the common Judeo-Christian tradition.

I really believe that at the end of the day, foreign policy is determined by a combination of interests, interests first, but in no small measure, also by values. European values are different from American values.

But the Europeans are becoming a stronger world power. We must do our part to resolve our differences with them.

If we accept Resolution 181, we resolve our differences with the Europeans, but we cease to exist. That is not an adequate solution. I suggest something else. I suggest Israel become one of the foremost economic and technological powers in the world. With that we will increase our national strength overall, and military strength as well.... With the rise of Israel's technological and economic power, there is an inevitable change in the way other countries around the world view us....

If you look at the so-called Asian tigers, 20 years ago they were basically dependent on American munificence. Now, even despite recent problems, they have become factors on the world scene. That is what Israel is becoming. It's becoming the next Silicon Valley of the world. Year 1 when I said that, everybody laughed, Year 2 there was silence, Year 3, everybody is trying to get on the bandwagon.

Q. Do you think you can realize this vision of yours? We need to have peace also.
A. I need one more term. I need one more term. Peace is important for peace, not for the economy.

Q. Could we be this Silicon Valley in the Middle East without having sorted out our problems...
A. Peace is an end of itself... Yes, of course it will help the economy but it will only create the necessary, not the sufficient, conditions for growth because peace, without free markets, will not produce growth. But free markets without peace do produce growth. That's happened again and again around the world, especially in the technological age, where each man carries on his back, in his head, the technological satchel. That is why hi-tech is booming in Israel despite the constant gloom-and-doom rhetoric that comes out.

Secondly, I think we're moving very quickly to the completion of peace agreements with our neighbors.

Q. You say one of the next steps is to move forward with the Syrians. The Syrians say they will only go back to the negotiating table where we left off. You say that's impossible. How is that going to be resolved?
A. It's not going to be resolved if the Syrians continue to insist on that. They've been waiting for three years and I think they realize right now that they have to ask themselves if they want to wait another four years, because they're not going to wait that long.

Q. When you win the elections, if you win the elections...
A. I like the "when."

Q. How will you manage working with these people who you have said...
A. The way I worked with Arafat. Arafat said he would not settle for a redeployment less than 30%.... How much did he get in the end? Ten percent plus 3. People said he would never agree to that.... It took me about two years, but I got him to agree to it.

Q. Do you think Assad is also as desperate to move forward?
A. I don't think he's desperate, and Arafat wasn't desperate either. But I would say that it's very clear to me that the peace process will continue, both with the Palestinians and the Syrians.

The only question is what kind of peace will we have, one that leaves us with something to defend the peace with, a real peace, or one in which we give everything and the Palestinians and the Syrians give up nothing?

Assad and Arafat understand that perfectly. They will negotiate with whoever is the prime minister of Israel. But they have very clear preferences who they want to see negotiating opposite them. That's why Arafat is working quite openly for Barak's victory, trying to get Azmi Bishara to remove his candidacy.

That's why Farouk Sharaa said openly that the Syrians prefer Barak. They don't prefer him because that serves Israel's interests, but because it serves the Syrian interest and the Palestinian interest. But I am responsible for the Israeli interest. Whether they like it or not, they will have to negotiate with me and therefore they'll have to make compromises of their own...

The peace process will continue but the question is at what price. With us, we'll pay a lot less and get a lot more. With Barak it's the exact opposite.

Q. Would you agree to any form of Palestinian statehood?
A. No. Because the word "form" implies gradations. Unfortunately, you're either pregnant or not, you're either sovereign or not. If you're sovereign, that sovereignty allows you to remove those constraints on sovereignty that I think are essential to the making of peace.

We have absolutely no interest in governing the Palestinians. They're governing themselves. They have the trappings of a sovereign state but not the real powers.

The most important powers they lack are the powers to control their borders, who comes in, who goes out.... [Once they have that] they're ready to place military formations from Iraq, Iran, or Syria along with weapons that could obliterate our air force, threaten our infrastructure or indeed create a huge terror base in the heart of our country.These are the powers I want to curtail, and they're not consistent with sovereignty.

I want the Palestinians to have maximum self- government, but no ability to threaten us.

Q. In terms of settlements, and not our argument with the United States, don't you think that just putting more people on the ground when we're moving to final-status issues makes it more painful, and an issue that is already complicated even more complicated?
A. What would have happened if people would have said that 50 years ago... That argument would have served the partition plan. That's exactly what people said then. There was one famous Israeli political leader who said "Jaffa, who needs Jaffa?" Try to think now of Tel Aviv without Jaffa.

Q. Barak has promised to get Israel out of Lebanon by next year...
A. I'll tell you why he can't do that, why nobody serious can do this, if you give a deadline, if you say I'm going to withdraw by such and such date. I demand certain terms, there is a built-in conflict in that statement.

If you have a guaranteed deadline, that means you can't insist on any conditions. When Barak says he'll leave by June 2000, what he's saying to the Syrians, Hizbullah and the Lebanese is: you needn't give us any terms because I'm committed now to withdraw by a certain date.

I say differently, and honestly, that if I get the terms, that if I'm satisfied I have the security terms, then the date is irrelevant. It would've happened yesterday, it could happen tomorrow, but the crucial question is how you achieve the terms. The date itself is only a function of the achievement of the conditions necessary for withdrawal.

I will withdraw from Lebanon as soon as I'm convinced we have the ability to prevent attacks from Lebanese soil against Israel. I'm not prepared to pay for solving that, to secure a Syrian promise to do that, by opening another front and enabling the Syrians to go back to the Kinneret, as Barak obviously is....

The Syrians could change their minds on both fronts. We'll have a Syrian crossing from Rosh Hanikra to Beit She'an and Israel will enjoy a wonderful peace. That is not my idea of peace. That's why I insist that the Syrians make compromises, the Lebanese make compromises, that we get real security foundations, that we can defend those areas....

Ultimately, that is the only way Israel can live in peace among the sea of non-democracies that surround us.... The only peace that will hold is a peace we can defend. That is why I'm prime minister of a government that is prepared to sacrifice the short-term applause and suffer the slings and arrows of bitter criticism but stand up for the ultimate interest of a peaceful and secure Israel.

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Ehud Barak      Fact File      In-depth Profile      Interview Ze'ev Binyamin Begin      Fact File      In-depth Profile      Interview Azmi Bishara      Fact File      In-depth Profile      Interview

Yitzhak Mordechai      Fact File      In-depth Profile      Interview Binyamin Netanyahu      Fact File      In-depth Profile      Interview