Netanyahu quits as Israel approves Gaza pullout

Benjamin Netanyahu

JERUSALEM - Israeli Finance Minister Benjamin Netanyahu has resigned in protest as the cabinet approved the first phase of evacuations from settlements in the occupied Gaza Strip.

The resignation of Netanyahu, Sharon's main rival in the right-wing Likud party, sent local markets reeling and showed the depth of division in the cabinet over the plan for "disengagement" from conflict with the Palestinians.

But the departure of the highest-ranking minister yet to go over the pullout was too late to prevent approval for the forced evacuations of settlers, due to start after August 15.

The cabinet voted by 17 to five to back the first phase of the initiative - removal of the settlements of Kfar Darom, Netzarim and Morag, isolated enclaves where resistance is likely to be among the strongest.

Netanyahu said his resignation letter counted as a vote against the pullout plan and told reporters that the plan would harm Israeli security and could intensify Palestinian attacks.

"I did not expect my leaving the government would stop the unilateral move," he said. "I understand the ambition to leave Gaza. I can't be part of a move that I believe is wrong, a move that will endanger security and divide the people." Sharon later named Vice Prime Minister Ehud Olmert as the new finance minister. Olmert, a long-time Sharon ally, has long supported the pullout plan.

Right-wing opponents see the withdrawal as a capitulation to a Palestinian uprising, as well as setting a precedent for ceding land captured in the 1967 war, which also includes the West Bank and Arab East Jerusalem.

The hawkish Netanyahu had long opposed removing all 21 settlements in the Gaza Strip and four of 120 in the West Bank despite the fact that it has the support of most Israelis.

Israel's blue chip stock index closed 5.2 per cent lower on news of the departure of Netanyahu, who made himself a darling of business for cutting taxes and social benefits as well as other reforms that helped lift Israel out of recession.

Markets nonetheless favour the withdrawal, the first time Israel would remove settlements from land where Palestinians want a state and touted by Washington as a possible step to reviving talks on a "road map" for peace in the Middle East.

Sharon's office said economic policies would not change as a result of Netanyahu's resignation.

The Yesha settler council commended him "for showing national responsibility and leadership, for deciding not to lend his hand in the uprooting of Jewish communities to encourage terror".

Settlers have watched their political options for defeating the pullout dwindle, while the fatal shooting of four Israeli Arabs by a radical opponent last week came as another blow to the movement - even though it condemned the attack.

In Kfar Darom settlement, dozens of settlers scuffled with paramilitary police as troops tried to remove two caravans that had been used for monitoring Palestinian militants nearby.

Netanyahu, 55, himself a former prime minister, is widely expected to challenge Sharon's leadership at some stage after the pullout and could benefit from the support of opponents of the Gaza pullout. Sharon is 77.

Palestinians welcome the Gaza withdrawal but suspect that Sharon will use it to tighten Israel's hold on much bigger West Bank settlements. Fewer than 4 per cent of the 240,000 settlers will be affected by the plan.

In the West Bank, gunmen shot and wounded an Israeli man and his son in a car near the Jewish settlement of Ateret, medics said. The boy was in critical condition, they said.

There was no immediate claim of responsibility.

In the southern Gaza Strip, Palestinian witnesses said a man had been shot dead by soldiers when he approached a building near a border area that he had abandoned during a military raid last year. The army was checking the report.

- REUTERS