Jerusalem — Disagreement over the future of a tiny strip of sand on the Sinai peninsula has brought Israel's rickety ``national unity'' government to the verge of collapse this week. Immediately at issue is whether Israel should agree to an Egyptian demand that ownership of the Taba beach -- claimed by both nations -- should be submitted to binding arbitration.
For both the Labor and Likud parties, the fate of Taba has become a test case for the fate of the peace process recently restarted by Jordan's King Hussein and Egypt's President Hosni Mubarak.
It also has brought to the forefront the sharp ideological differences that divide the two parties on the question of what to do with the remaining territories occupied by Israel during the 1967 Arab-Israeli war.
Prime Minister Shimon Peres's defeat in the inner Cabinet on Sunday went almost unnoticed, in the midst of the ongoing crisis in Beirut, where some 40 American hostages are being held by Shiite Muslims. The Shiites are demanding that Israel release all 766 Shiite Lebanese prisoners it is holding.
Opposition from Likud members, led by Foreign Minister Yitzhak Shamir, made it clear that the prime minister could not win a full-Cabinet vote to approve submitting the Taba dispute to arbitration.
The Labor Party and Mr. Peres want to submit Taba to arbitration in return for normalization of relations between Israel and Egypt. Improvement of ties, Peres's aides say, is essential to ensure the survival of Israel's only peace treaty with an Arab state and to build the Israeli public's confidence that the peace process can be expanded.
Likud and Mr. Shamir insist that Israel should not have to arbitrate Taba to win what it says Egypt agreed to in the Camp David peace treaty signed in 1979 -- a full peace.
The question of Taba is complicated by the linkage both parties have made between Taba and the fate of the Israeli-occupied West Bank and Gaza Strip.
Both Labor and Likud officials believe that submitting Taba to arbitration would produce a chain reaction. This may lead, they say, to Israel negotiating a solution to the Palestinian issue with Jordan and the Palestinians, and the defining of Israel's eastern boundary.
It is on these issues that the two parties are bitterly opposed.
Labor supports an exchange of ``territory for peace'' that would return as much as 60 percent of the West Bank to Jordan. Likud insists that Israel not give up any more of the land it has occupied since 1967.
Some Likud ministers, including Ariel Sharon, say Taba is being used by the Egyptians, Jordanians, and Americans as a gauge to measure how much land Israel would be willing to give up in the West Bank and Gaza.
Shamir took a tough line on the Taba dispute in a Likud meeting Tuesday. But one Labor official observes that Shamir left himself an out when he said that Taba was not an important enough issue over which to break up the government.
Shamir has much to gain by holding the government together, political observers note. Under the agreement signed with Labor last fall, he will regain the premiership in October. A government collapse would involve him in a power struggle with Likud rivals.
For Peres, the question is trickier. One Labor Party official insists that the wider issue of peace, symbolized by Taba, is so important to Peres ``that he has no fallback position.'' Likud, his aides have said, must give in on Taba or Peres will resign and the government will collapse.
But Labor Party opinion is divided over whether now is the right time to dissolve the government and seek enough partners to form a narrow coalition, or go to new elections.
Noting that Israel's economic crisis is not yet over and that Israel has not yet completely disengaged itself from Lebanon, Labor minister Yaacov Tzur said Peres should wait until he has more successes to show the public before risking new elections.
Most analysts here feel that Peres and Shamir will eventually find a compromise allowing the Taba issue to go to arbitration soon. But even if the dispute is resolved, it has foreshadowed the future showdown that many analysts believe will inevitably bring about the government's collapse.