Israel - Domestic policy

Sharon's domestic policy must focus on the conflict that goes on between Israel and the Palestinians. Every other issue— economics, trade, tourism, development—is keyed to resolving the situation that has resulted in hundreds of deaths and threatens the essence of Israel's conception of itself as an open society. Security, which means freedom from acts of terrorism, is what Israelis want most. Sharon has expressed the willingness to accept "painful compromises" to achieve peace, but emphasizes that no compromise is possible on security against terrorism, and that no meaningful peace talks can take place until terrorism stops.

As of 2003, Israel struggled with slow economic growth and high unemployment; the Israeli economy was expected to expand by only 0.8% in 2003. The budget deficit was 3.7% of GDP in 2003; however, it was expected to fall to 2.9% of GDP by 2004. The 2003 budget approved by the Sharon government in August 2002 included freezing the minimum wage and cutting National Insurance allowances. Critics claimed the budget discriminated against workers, the poor, the elderly, and the handicapped.