Syria is the most revealing test case for the failure of change in Middle Eastern politics. Had Damascus moved from the radical to the moderate camp, it would have decisively shifted the overall balance, making a breakthrough toward a new and different Middle East. Syria's participation in the Gulf War coalition of 1991, its readiness to negotiate with Israel, its severe economic and social stagnation and strategic vulnerability – all topped off by the coming to power of a new generation of leadership – provoked expectations that it would undergo dramatic change.

Like so many of the Arab regimes' policies during the twentieth century's second half, Syria's strategy was both brilliant and useless. The regime survived, its foreign maneuvers worked well much of the time, and Syrian control over Lebanon was a moneymaker. But what did all of this avail Syria compared to what an emphasis on peace and development might have achieved?

It was a Western idea that desperation at their country's difficult strategic and economic plight would make Hafiz al-Asad – and Saddam, Arafat, and other Arab or Iranian leaders as well – move toward concessions and moderation. But the rulers themselves reasoned in exactly the opposite way: Faced with pressure to change, they usually became more demanding and intransigent.

Often, at least up to a point, this strategy worked, as the West offered more concessions in an attempt to encourage the expected reforms. Yet to the regimes this behavior seemed the result not of generosity or proffered friendship but of Western fear, greed, or their own superior strength and tactics. This perception encouraged continued intransigence in hope of reaping still more benefits.

Winston Churchill once said, “Dictators ride to and fro upon tigers which they dare not dismount. And the tigers are getting hungry.” This image fits the Middle East remarkably well. The region's dictatorships – that is, virtually all of its governments – ride upon a system based on the four legs of demagoguery, ideology, populism, and the external conflict. The tigers are satiated on a rich diet of distracting wars and crises, misinformation and ideas permitting no contradiction, rewards and punishments, the manipulation of nationalism and religion, the cultivation of hatred and deflection of blame onto others, the promotion of paranoid fear, and hopes for utopia. In this case, the tigers do not consume their riders but instead devour the potentialities of those countries and peoples, all the while striding back and forth in their confining cage, getting nowhere.

In the 1990s, more than in any previous decade, this system faced serious challenges. At the time, these factors seemed capable of overturning the existing orders, though later, in retrospect, this belief appears to have been exaggerated. How could one have been so mistaken? Certainly wishful thinking played a role. More important, perhaps, was the difficulty in believing that historical experience could be so disregarded – though perhaps it was merely interpreted differently – and that the modern Middle East could be so different from other places and other times.

To pick one example of such expectations among many, U.S. National Security Advisor Sandy Berger said, “The Middle East is in the midst of a transition unlike anything we have witnessed in living memory.

The occupation of the West Bank and Gaza Strip brought under Israeli rule a large part of the Palestinian people. If for a brief moment after the war innovative policy options were entertained – such as the Israeli government's secret decision, on June 19, 1967, to consent to withdraw to the Egyptian and Syrian international borders in return for a peace treaty; or Allon's suggestion, on August 19, 1967, to establish in the West Bank a miniature sovereign Palestinian state tied to Israel by a treaty of mutual defense and a common market, a plan supported by the high military command as well – these passed away rather rapidly. In their stead, the old colonial logic gradually reasserted itself, as we saw in the previous chapter.

The place of the Palestinian population of the occupied territories (OT) in Israel's incorporation regime was determined by the contradiction inherent in the desire to annex some or all of these territories without making their residents citizens of Israel. The slowly evolving solution to this dilemma became “creeping annexation” through Jewish settlement and the partial extension of Israeli institutions into the OT.

Unlike the Palestinians within Israel's 1948 borders, who had been granted civil and political rights as individuals, those on the West Bank and Gaza were left in legal limbo. They were not integrated into the state of Israel, but remained under a military government that, on its part, accepted only partially the international legal framework that is supposed to guide belligerent occupation.

For some time now, Israel's main political and moral dilemma has been described as the need to choose between the two cardinal principles of its political culture: the particularistic commitment to being a Jewish state and the universalist commitment to being a Western-style democracy. The former course would seem to indulge the desire for a homogenous nation-statehood by excluding Palestinians from equal citizenship, whereas the latter would gratify the aspiration for democratization by making Israel the state of all of its citizens (see Tel Aviv University Law Review 1995; Mautner et al. 1998; Margolin 1999; Gavison 1999; David 2000). Though such an overly formalistic depiction of these two political principles and their partisans highlights their deep-seated mutual hostility, it masks the tensions within each one of them. Thus, the Jewish element in the Jewish–democratic formula involves a contradiction between Zionism as a secular nationalist movement, seeking self-determination for the Jewish people, and Judaism as both a religious tradition and, in its Orthodox version, a state religion. Nor does the Jewish–democratic distinction recognize the systematic ethnic stratification of Israeli Jews. Similarly, the meaning of democracy is hardly self-evident in the Israeli context. It ranges from an older formalistic arrangement of electoral procedures to a newer substantive liberal conception, focused on a working civil society. Most importantly, the Jewish–democratic dichotomy glosses over the way in which the tension between these two principles has been encompassed by a third – the colonial character of the Zionist state- and nation-building project.

The genesis of virtue

The most distinguishing characteristic of the Jewish Labor Movement in Palestine was that it was not a labor movement at all. Rather, it was a colonial movement in which the workers' interests remained secondary to the exigencies of settlement. Keeping this observation in mind will allow us to properly describe the movement's institutional dynamics and understand the variety of citizenship forms it fostered. It will also save us the mental acrobatics undertaken by the movement's cadres and historians in order to fit this colonial movement into the Procrustean bed of an “a-typical” labor movement. Though they preferred to use Labor Movement as a common label, a more accurate alternate term – hityashvut ovedet, freely translated as Labor Settlement Movement (LSM) – was also employed and will serve as our own designation.

A colonial society is any new society established through the combination, to various degrees, of military control, colonization, and the exploitation of native groups and their territorial dispossession, justified by claims of paramount right or superior culture (Shafir 1996b: 193). Some forms of colonialism were undertaken only to exploit native resources and populations. But when colonialism also involved colonization, namely territorial dispossession and the settlement of immigrant populations, its impact was much more far reaching and destructive for the natives. This difference explains why parties to conflicts generated by colonization are usually so intransigent. As a late colonial project, Zionism, including Labor Zionism, was a national colonial movement.

In 1948 the nature of the Jewish–Palestinian frontier struggle was radically transformed. The intercommunal conflict, which had taken place within the framework of British Mandatory rule, had now split into two: on the one hand, an international conflict between a number of hostile sovereign states and, on the other, an internal frontier struggle between the state of Israel and the Palestinians who had remained within its territory at the end of the 1948 war (Pappe 1992). These, the “1948 Palestinians,” and their offspring now count just under one million, constituting about 17 percent of the total population of Israel. (These figures do not include the approximately 170,000 Palestinians living in east Jerusalem, virtually all of whom are legal residents but not citizens of Israel.)

Oren Yiftachel has defined an internal frontier as “a region within a state where an ethnic minority forms a majority, and where the state attempts to expand its control over territory and inhabitants” (Yiftachel 1996: 496). In Israel the Palestinians are indeed concentrated in three geographical regions – the Galilee in the north, the “Triangle” in the east, and the Negev in the south – and, depending on how regional boundaries are drawn, they can be said to constitute a majority in at least the first two of these regions (see map in Yiftachel 1992: 64).

During the 1990s, liberalization processes, both global and local, have resulted in the incorporation into Israeli society of new population groups that have further challenged the frontier incorporation regime and the republican citizenship discourse: Jewish and non-Jewish immigrants from the former Soviet Union (FSU), immigrants from Ethiopia whose Jewishness has been questioned by the rabbinic authorities, and overseas (i.e. non-Jewish, non-Palestinian) labor migrants.

The incorporation of immigrants from the FSU into Israeli society has been effected largely through liberal market mechanisms from which most of them have been well equipped to benefit. Their incorporation has been justified, however, in classic ethno-national terms, that most of them seem to endorse, even though a significant minority among them are not Jewish. Thus, the “Russian” immigrants occupy a unique place with respect to the liberal–ethno-nationalist dilemma. Furthermore, since immigrants from the FSU have been motivated much more by “push” than by “pull” factors, and have arrived in such massive numbers, they may yet form an ethnic enclave within the society. Inward-looking and isolationist, even “separatist,” tendencies can already be identified among them, so it is still impossible to predict whether they will adopt one of the existent competing citizenship discourses, or develop one of their own (Nudelman 1997).

The United Nations partition resolution for Palestine, which was adopted on November 29, 1947, called upon the two states whose establishment it advocated – a Jewish state and an Arab state – to adopt written constitutions that would guarantee, among other things, “equal non-discriminatory rights in religious, economic, and political areas to all persons, including human rights, freedom of religion, language, speech, education, publication, assembly, and association” (Medding 1990: 11–12; Mahler 1990: 81). In accordance with this resolution, Israel's declaration of independence, adopted on May 14, 1948, stipulated that “a Constitution [would] be drawn up by a Constituent Assembly not later than the first day of October 1948” (Medding 1990: 238). In July 1948 a constitutional committee was established to prepare a draft constitution, and the constituent assembly was elected in January 1949. Instead of adopting a constitution, however, the constituent assembly declared itself to be the first Knesset on March 8, 1949. On June 13, 1950 “the Knesset voted by a 50–30 margin to postpone indefinitely the adoption of a formal written constitution and decided instead to allow for its gradual creation, with the individual pieces to be designated Fundamental [or Basic] Laws” (Mahler 1990: 83).

The debate leading up to the decision not to formulate a complete written constitution in the main pitted against each other politicians advocating a liberal conception of citizenship and making formal, principled arguments and those seeking to promote an ethno-nationalist or republican conception and arguing in the name of pragmatic considerations.

Students of Zionist and Israeli politics have been puzzled, over the years, by the accommodating, even subservient, attitude displayed by the Zionist movement and by the Israeli state towards Orthodox Jews, many of them non- and even anti-Zionist. Zionism, after all, has always proclaimed itself a secular national movement in the tradition of the Enlightenment, intending, in Herzl's famous words, to keep the rabbis in their synagogues and the soldiers in their barracks. Furthermore, Orthodox Jews have constituted a relatively small minority in the Yishuv and in Israel, and their political influence has been vastly disproportionate to their electoral strength.

In terms of the reckoning of rights and obligations implied by the concept of citizenship, Orthodox Jews, most of whom have traditionally shunned the pioneering activities of physical labor, agricultural settlement, and military service, have not only been awarded the full range of citizenship rights and, in addition, autonomy in education, but have also been given control of other people's rights, as in the areas of family and dietary laws and in regard to the observance of the Sabbath in the public sphere.

In this chapter we examine in detail the nature of the crisis that beset Israeli society and its economy between the mid-1970s and the early 1990s, and of the institutional transformation that was consequent upon it, as well as their interaction with, and impact upon, Israeli citizenship. The institutions we chose to examine are the military, the Histadrut, and what we would broadly call the institutions of the capital market and the business community. We will inquire how the decline of the republican institutions, foremost among them the Histadrut, reshaped the relationship between the state and the market. Of the various aspects of the deregulation and liberalization of the economy we will focus on one: the gradual but by now decisive liberalization of the capital market. In our view it is this aspect of liberalization that created, by the early 1990s, the conditions for the emergence, for the first time, of an Israeli business community – a more-or-less cohesive social sector made up of professional business executives interested primarily in profit making (and their counterparts in the state administration) and not beholden to the state, the Histadrut, or the values of pioneering republican virtue. Indeed, the very term “business community” is new in Israel, and we date its origins to the past decade. We will trace the emergence of this community by focusing on the shifting fortunes of the largest Israeli corporation: Koor Industries, once the flagship of the Histadrut's Chevrat Haovdim, now Israel's largest multinational holding company.

Our purpose in this book was to offer a comprehensive long-term historical–sociological analysis of Israeli society that could explain its trajectory of development, from its origins in the Yishuv up to its currently ongoing liberalization and setting out on the way of peacemaking with the Arabs. To achieve this goal we developed a conceptual framework that departed in several important respects from previous comprehensive studies of Israeli society. Following a critical evaluation of these studies, we rejected the functionalist mode of explanation; the view of Israeli society as exclusively Jewish; the view of the Arab–Israeli conflict as exogenous to the society; the view of the Labor Zionist elite as a “service elite” devoid of its own particular interests and unconcerned with the pursuit of power; and the conceptualization of Israeli political culture as comprised of only two ideological elements – Jewish nationalism and liberal democracy.

Our own theoretical framework has centered on the concepts of “citizenship discourse” and “incorporation regime.” An incorporation regime, as defined by Yasemin Soysal, is a regime of social, political, economic, and cultural institutions that may stratify a society's putatively universalist citizenship by differentially dispensing rights, privileges, and obligations to distinct groups within it. This differential allocation is legitimated, we argued, through the use of particular ways of conceiving of the membership of individuals and groups in the society and the state. These conceptions of membership, which define the rights and duties each side has towards the other, we have termed “discourses of citizenship.”

The 1967 war was followed by a process of colonization, first halting, then swift, in the occupied territories (OT). Its purpose, as before 1948, was to establish a permanent presence in the designated areas, alter their demographic constitution, and eventually annex them to Israel. But the location, significance, and justification of colonization, as well as the citizenship discourse used to legitimate it and the rights granted the settlers, show clear though partial signs of Israel's burgeoning transformation. For the first time, the republican discourse encountered serious competition in the sphere of colonization, its home turf so to speak. This took the form, first, of a religiously redefined nationalist discourse and, later on, of a liberal discourse as well.

Mizrachim

The dominant status of Ashkenazim in Israeli society is commonly explained by reference to their having been the pioneers, the earlier Jewish settlers in the country. Massive Mizrachi immigration took place only after 1948, so the argument goes, and by then the old-timer Ashkenazim, especially those belonging to the LSM, had laid the foundations for a new institutional edifice in which they occupied the commanding heights. On this interpretation, chronology, without regard to social interests and conflicts, was directly transposed into history.