The Israeli elections recently took an unexpected turn away from the dominating issues of war, peace, Israel's future relationship with the Palestinians and a possible invasion of Iraq. Prime Minister Ariel Sharon (pictured at left), 74, the hard-line candidate from the Likud Party, has found himself battling allegations of corruption in his bid to fend off Amram Mitzna (inset, right), 57, the dovish former general from the Labor Party. Questions arose about the circumstances surrounding a $1.5 million loan that Sharon's sons obtained to pay off their father's campaign debts from the 1999 election, causing Sharon to fall in the polls. His slide was halted when he held a news conference to defend himself and an Israeli judge ordered the live broadcast cut off after 12 minutes. The judge said Sharon's comments were a violation of Israel's campaign laws, but the move backfired -- at the moment, Sharon and Likud seem headed for victory in the Jan. 28 election. Last week, the Washington Post-Newsweek's Lally Weymouth had wide-ranging interviews with both candidates in Israel.

Excerpts begin on Page 2.

WEYMOUTH: What do you say to those who claim that your sons borrowed large sums of money illegally and that the law may have been broken in the case of campaign contributions sent to you from the U.S.?

SHARON: That is purely a political issue -- an attempt to change the government using lies. If somebody wants to conduct an inquiry, I'm ready to give every answer. I am busy conducting a war against terror, preparing this country for a war with Iraq and talking about plans for the day after [the end of Saddam Hussein's regime] with the United States, Russia, with Europe. I don't have time for these things.

If the United States attacks Iraq, how likely is it that Saddam Hussein will attack Israel?

The United States will take all necessary steps to prevent an attack on Israel. Everyone understands that if Israel will be attacked, Israel will react.

Do you think the Americans are correct to want to overthrow Saddam Hussein?

I think that they are more than correct. We know the danger of the regime in Iraq.

Polls show the majority of Israelis favor building a wall to separate Israel from the territories. Your comment?

These electronic fences do not create [a] political border nor a security border. They're another means to help fight terror, but not more than that. A small minority of Israeli Arabs is involved in terror now. The suicide bombers cross into Israel, not carrying any weapons, equipment or explosives. The equipment for the suicide bombers is prepared in Israel, by Israeli Arabs . . . . The fence [is not] an ultimate answer.

People ask if you have a plan for dealing with the Palestinians.

I have a detailed plan that we discussed with the White House.

What do you think of the plan developed by the so-called "quartet": the U.S., the U.N., the European Union and Russia?

Oh, the quartet is nothing! Don't take it seriously! I don't think the United States takes it seriously. There is a plan that will work.

What is the outline of this plan?

First, [Palestinian leader Yasser] Arafat should be removed from an influential position. Secondly, a prime minister should be appointed. Third, reforms should be undertaken in several fields, but mostly in the security organizations. Presently, Arafat's security organizations act together with Hamas. Then there are problems on the financial side. Our estimate of Arafat's property is about $2 billion.

Once the reforms have been completed, there should be free and democratic elections. We agreed [with the White House] that the solution will be implemented in phases. Phase one is a full cessation of terror. Phase two is an interim phase, where each side agrees to do several things.

What will Israel do?

Israel will have to create continuity in the area so the Palestinians will be able to travel without crossing our checkpoints. I said that I am ready, if they have taken steps against terror, to recognize a fully demilitarized Palestinian state without final borders -- having only police equipped with light weapons. Israel will control the external borders and will have the right to fly over the territory. I did not hesitate to say these things at a crucial point, just before the primary. That's how I lost the massive majority that I had in my own party.

Now we come to phase three. If there's no terror whatsoever, then we will have to decide about the final borders.

Can you describe your relationship with President Bush?

The basis for the relation[ship] is credibility. "Yes" is yes and "no" is no. That doesn't mean that we agree about everything, but I say what I mean, and I mean what I say.

You have talked about making compromises with the Palestinians.

I am ready to make painful compromises for a real peace. I'm not going to tell you what those painful compromises are because once I've said what they are, that will be the start line of negotiations.

You said that Iraq is hiding its weapons of mass destruction in Syria.

I said that we have information that should be proved, about chemical and biological weapons as well as other weapons that were sent to Syria by Iraq. We don't know if the weapons smuggled into Syria stayed in Syria or were sent farther.

Did the chemical and biological weapons go to terror groups?

We don't know if the Syrians are hiding them or whether they were sent to the Iranian Revolutionary Guards in Lebanon. The Iranians are very involved in terror. Together with the Syrians, they're behind Hezbollah. The Hezbollah now has more than 10,000 rockets in southern Lebanon. The Iranians are also working among Israeli Arabs, urging them to participate in terror. Moreover, they are in close contact with the Palestinian Authority. The Iranian Revolutionary Guards and the Hezbollah in Lebanon are smuggling weapons to the Palestinian Authority.

What happens after the Iraq war? Will the Arab countries face difficult economic times?

Yes, they'll be in a very dangerous situation. So it may be time to weigh in with a "Bush Plan" in order to reconstruct the economies in the Middle East. But it should be conditioned on the democratization of the Arab countries.

WEYMOUTH: How did you end up as head of the Labor Party?

MITZNA: I was watching what was happening for the last two years. I decided I couldn't sit on the fence watching my country break apart. The Labor Party and the peace camp collapsed after [Ehud] Barak [former prime minister and Labor Party leader] lost. The Labor Party joined the Likud government and lost its identity.

What do you offer that's new? You said Israel should go back and talk to Arafat.

I have said I will resume negotiations with the Palestinians and negotiate to reach an agreement on [the basis of] the same ideas raised by Barak and the Clinton administration. One of the irrelevant questions that a lot of people are arguing about is whether I'm going to speak with Arafat.

It's not irrelevant if the president of the United States says that he thinks Arafat should go and a new regime should come that's not involved with terror. Yet you say you would deal with Arafat.

I said I will deal with the Palestinians. You have to resume negotiations. With whom do you negotiate? The Americans? You have to deal with the Palestinians.

Does that mean Arafat?

I will negotiate with the Palestinians and, hopefully, reach an agreement. The Palestinians, hopefully, will come to the conclusion that they have to negotiate. After two years of intifada, both people understand that just the use of military power or terrorism will lead the two societies nowhere. The best would be to negotiate with Palestinian leaders below Arafat. Then the signing ceremony will be with Arafat. Only if he signs will the Palestinians feel confident. By the way, Sharon is dealing with Arafat. His son met with Arafat several times.

What's the rest of your plan?

My initiative has two parts. The other part is a unilateral approach -- if negotiations with the Palestinians come to a dead end, we will take unilateral decisions. Israel must separate from the Palestinians.

You will build a wall?

Build a wall, build a fence. It's a kind of ultimatum to the other side: Look, let's sit down and try to end the conflict. Let's put all the sensitive issues on the table. If we succeed, fine. If not, we will decide unilaterally what Israel's vital interests are.

You said you would not join a unity government led by Sharon. Why?

We have to defend ourselves from Ariel Sharon's ideas. Ariel Sharon is not ready to withdraw settlements, to separate from the Palestinians or to give up the illusion of the greater Israel. . . .

The Labor Party should say loud and clear: If we succeed, we will bring change. If not, we will stay in the opposition and fight. Sharon stands for a concept that was proven wrong in the last two years.

You mean using force only?

Just the use of force -- neglecting any negotiations. . . There's no security, and the economy is collapsing.

Is it Sharon's fault or Arafat's?

It's Arafat's. So, are we going to blame Arafat or initiate something to change it?

With the corruption charges against Sharon, why isn't the Labor Party gaining in the polls?

This is a very interesting question. Most people in polls support my initiative, but when you ask them who they will vote for, they say Likud.

Why do you think this is?

This is the billion-dollar question. . . . They agree to separation, they agree to a two-state solution, they agree to the evacuation of settlements, they agree to everything. But they don't trust we will do it.

Will the scandal affect the election?

Yes, it's just the tip of the iceberg. First of all, the current issues are not gone -- they are under investigation. And I'm sure there will be many more. . . .

Even if Sharon wins the elections, I don't think he'll be able to stay as prime minister. It will be very difficult for him to form a government. Sharon talks so much about a unity government because he understands what the outcome will be: a government based only on Likud and the right-wing parties.

Are you concerned about the effect that an invasion of Iraq may have on Israel?

I'm not concerned. I think that Israel will not be involved.

You don't think the Iraqis will launch chemical or biological weapons?

No. I think the United States has reassured [Israel] that they will destroy any launchers that are still in the Western part of Iraq.

Would you divide Jerusalem?

We have to negotiate arrangements in Jerusalem. I'm not using the word division. Muslim neighborhoods will be under the authority of the Palestinians, and Jewish neighborhoods will be under the authority of the state of Israel. The Old City will be under some kind of international arrangement. And in what is called the Temple Mount, the Western Wall, these places will have to come to an arrangement in which there is Jewish sovereignty in the places that are holy for Judaism, and the Palestinians will take care of the Islamic holy places. It is sensitive but necessary to come to some conclusion, even with Jerusalem.