Labor and the Likud signed an initial coalition agreement on Tuesday morning, a few hours ahead of the vote by Labor's central committee to join the government.
Labor Party Chairman Ehud Barak met early on Tuesday morning with Prime Minister-designate and Likud Chairman Binyamin Netanyahu in Ramat Gan's Kfar Maccabiah hotel in an attempt to finalize outstanding issues, especially in the economic sphere.
Both sides announced substantial progress. Among the many clauses to be included in the agreement are political, economic, educational and security fundamentals:
Israel will work on forming a comprehensive regional arrangement for peace and for economic cooperation in the Middle East.
Israel is committed to all national and international agreements signed by former governments.
The government will work toward achieving peace agreements with all of its neighbors in a manner that preserves Israel's security and strategic interests.
A defense minister from the Labor Party will be a full partner in the diplomatic process and a partner in any condensed governmental forum responsible for diplomatic, security and economic decisions.
The government will work to enforce the law on unauthorized Jewish settlement outposts and illegal Palestinian construction.
Even though Netanyahu has refused to even refer to the issue of a Palestinian state during the past few months, the agreement indicates that Netanyahu will accept former US president George W. Bush's road map, which was approved by former prime minister Ariel Sharon and recognizes the concept of two states for two peoples.
It was agreed that Labor would receive five portfolios: defense, industry, trade and labor, agriculture, and welfare and social services, and one minister-without-portfolio to be in charge of minority affairs. In addition, there will be two deputy defense ministers, and Labor MKs will head the statutory Knesset committees - Foreign Affairs and Defense, Absorption, and Education - for one-third of the committees' tenure, in rotation.
The two sides eventually agreed that Barak, rather than Netanyahu, would appoint Labor members to the portfolios.
Histadrut Chairman Ofer Eini, a member of Labor's negotiating team, said on Tuesday morning that the economic understandings were "unprecedented."
Likud agreed to establish a "round-table" that would include representatives of the government, the Histadrut and employers to advise the government on economic matters.
It is hoped that the three sectors will have created an emergency plan for handling the economic crisis within 30 days of a new government's swearing in, and also come up with ideas for reducing unemployment, solving the credit shortage and developing initiatives to restart market growth.
The economic side of the agreement states that the government hopes to allocate budgets for infrastructure projects, for the establishment, together with academic institutions, of research and development centers, and for creating new jobs in high-tech.
The government wishes to designate an annual NIS 100m. more for career retraining, and a possible NIS 200m. more for subsidizing day care centers as a way of encouraging women to go out to work. It will designate an as-yet undecided sum of money to assist nonprofit organizations and prevent massive dismissals.
The agreement would also advance legislation encouraging the purchase of products made in Israel both by public organizations and by factories subsidized by the state.
Also included is an additional budget plan of NIS 750m. for pensions in 2009-2011. It extends the period for collecting unemployment payments by a month, and removes from the agenda initiatives to tax homemakers.
The agreement further states that the government will act to limit the Economic Arrangements Law to proper causes.
The government hopes to complete legislation for enforcing labor laws, as well as legislation that arranges employment in the police and the Israel Prisons Service.
It will also establish a fund for assisting businesses in economic distress, and look at several ways to change the current employment structure. It claims that the government will not worsen the terms of budgetary pensions.
Despite the generous offers, few Labor members reacted positively.
Party secretary-general MK Eitan Cabel described the agreement as "a liquidation sale of words and thoughts. The Labor party has signed historic agreements that were never implemented. This agreement crowns Netanyahu prime minister and qualifies his government."
MK Ophir Paz-Pines added that the agreement was an attempt to "buy us with portfolios and empty declarations. The Labor central committee will prove today that the party is not for sale and that it didn't end its historic mission."
Welfare and Social Services Minister Isaac Herzog, who had previously been undecided on joining the government, said he was planning to support the deal.
"The agreement has a dramatic and important potential to influence the conduct of the state in the next years, and the Labor Party will have a direct and meaningful influence in implementing the values and concepts it believes in," Herzog said. "It was very hard for me to make this decision, and I am aware of its implications."
Finance Minister Ronnie Bar-On of Kadima said of the agreement that "people who go to bed with dishrags should not be surprised when they wake up wet and smelly." He stated that this deal, and those struck with Shas and Israel Beiteinu, would cost the taxpayers NIS 10 billion.
"Livni should be proud that she didn't surrender to the outrageous demands of the parties the way Netanyahu did," Bar-On added.
Kadima faction chairman Yoel Hasson accused Barak of "coercing his faction members to abandon their values and giving political opportunism a bad name."
Meretz Chairman Haim Oron said the deal proved that Labor had lost its ideology.
"Neither Netanyahu nor Barak believes in the peace process, so they are merely throwing sand in the eyes of the public," Oron said.