Fallout from an influence-peddling scandal could break apart Israel's ruling right-wing coalition and cause early elections, even though Prime Minister Benjamin Netanyahu has escaped indictment on corruption charges.
Both Edna Arbel, Israel's state attorney, and EliaKim Rubinstein, Israel's attorney general, said that there was not enough evidence to take the Israeli leader to trial, despite a 12-week police investigation that recommended indictment of the prime minister and three allies.
Attorneys in Ms. Arbel's office were reportedly divided. That will provide ammunition for the opposition Labor Party as it pushes for Mr. Netanyahu's resignation.
Netanyahu declared the scandal "nonsense," but is working to stem a rebellion of Cabinet members and defections from his coalition of right-wing and religious parties.
"There will be a big backlash, and major problems - coalition problems - for Netanyahu," says Alon Liel, a former director-general of the Ministry of Economic Planning. "We are now shifting from the legal to the political arena, where all debate will be public."
At stake are the loyalty of two coalition parties, the ultra-Orthodox Jewish Shas and Yisrael ba-Aliya, a powerful party of Russian emigrants, that together account for 11 seats in Israel's parliament, the Knesset. Netanyahu's coalition now numbers 66 seats in the 120-seat body, and the political situation in Israel is so unstable that a minority coalition could not rule.
Netanyahu also faces the possible resignation of up to five Cabinet ministers. But even before the announcement that he would not face charges himself, he began damage-control efforts in a series of meetings with likely defectors.
"Netanyahu's tactics have changed in the past two days," says Mr. Liel. "First this case was 'nonsense,' but now they say that the prime minister can make a mistake of judgment, and that is different from a criminal action."
"But ... all the mistakes of the last 10 months came out of his office," says Liel, who served with the government until January.
Analysts say that any early election would still be a tossup between Netanyahu and his Labor rival, Shimon Peres, an architect of the Arab-Israeli peace process whom Netanyahu narrowly defeated last May.
Israeli polls show that Netanyahu supporters largely consider the scandal to be part of an anti-Netanyahu conspiracy.