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Israel's Political History
1977-92
In 1977 the so-called "political upheaval" occurred. For the first time since the establishment of the state, the right-wing Likud bloc outpolled the Labor Party and established a coalition government without it. That first Likud government was headed by Menachem Begin. Labor's demise was attributed to widespread public dissatisfaction with the debacle of the Yom Kippur War, which was the nation's most devastating military campaign. A list of other factors have also been cited such as a series of financial scandals which led one Labor minister to commit suicide, and a shift to the right on the part of the longtime centrist National Religious Party, plus a large segment of the Sephardi electorate which felt shut out by Labor's European-born elite.
Before the elections Shimon Peres replaced Rabin as leader of the Labor Party.
During his first term, Begin reached a peace agreement with Egypt in 1979, following an historic visit to Jerusalem by then Egyptian president Anwar Sadat. The Peace Now movement was founded in 1978 as a counterbalance to right-wing pressures on Begin against yielding land to Egypt in exchange for peace.
In the economic sphere, the Likud embarked on a liberalization program, following years of centralized economic management by Labor.
 However, some of Likud's privatization efforts spun out of control and inflation skyrocketed, leading to the resignations of three successive finance ministers. Then in October 1983 during Begin's second term of office, the stock market crashed due to the plummeting values of bank share prices. By 1984 the annual rate of inflation was a triple-digit figure.
In 1982 Israel also became involved in its fifth war, the Lebanon War, also known as "Operation Peace for the Galilee," planned and executed by then defense minister Ariel Sharon. It was the first war that was openly criticized by a broad sector of the public. About a year later, as a result of a massacre of Palestinians by Israel's Lebanese Christian allies in the Beirut refugee camps of Sabra and Shatilla, Sharon was forced to resign. Due to the controversy over the war, ill health, and the death of his wife, Aliza, Begin resigned in September 1983. He was succeeded by Yitzhak Shamir.
The 1984 elections ended in a draw between the two main political camps and a national unity government was formed in which Labor Party leader Peres served as prime minister for the first two years, and Likud leader Shamir the following two. Labor's Rabin served as defense minister. This government managed to stabilize the economy and curb inflation, while slowing the development of Jewish settlements in Judea, Samaria, and the Gaza Strip most of which had been built under Likud leadership. Under Peres the government withdrew most of Israel's forces from south Lebanon, but left a small number in a security zone just north of the Israeli border.
Another national unity government was formed after the 1988 elections. This government initiated a peace process, which was to have involved elections in the West Bank and Gaza Strip. It was during this period that the Gulf War took place and Israel was struck by 39 Scud missiles fired from Iraq. The coalition fell in March 1990 over disagreement about how to negotiate peace with the Palestinians. After Peres failed to form an alternative government, Shamir formed a narrow coalition with right-wing parties.
In October 1991 the first Middle East peace conference was held in Madrid, the first such forum to be attended by Israel and almost all the Arab countries. Bilateral and multilateral talks between Israel and its neighbors followed, but little progress was made. The government finally disintegrated due to the opposition of its more extreme right-wing members to the peace process.
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