Mr Sharon may win today, but peace will depend on those he defeats

They should resist and stick to their principles

Whatever else, it isn't the economy, stupid. Try to imagine a democracy which has just had two years of negative growth, where interest rates are nearing double figures and the currency and stock market are falling, where unemployment is above 10 per cent and rising, and where on the climactic eve of election day, no one is talking about it.

But then this is Israel. Last week, at a rowdy hustings attended by about 500 people in a downtown Jerusalem hotel, an Israeli of American extraction who had been taking a keen interest in the proceedings up to then, simply walked out when the chairman said he wanted the panellists to discuss what in any other country would be the number one issue, declaring loudly: "I'm not interested in economics."

In doing so, he was only being bolder than the rest of the audience, not different. But then of course, not only is Israel not exactly a normal democracy, but after more than two years of the intifada it cannot even pretend to be in normal circumstances. It's tempting, therefore, to think that the sometimes unfathomable complexities of electoral politics here don't matter. No doubt Ariel Sharon will do better than his opponents this week. He will probably be able to form some sort of government during what may be weeks of horsetrading after polling today. And that is about it.

But of all the hypotheses and variables that make most coalition speculation about the coming weeks so pointless, the future of the Israeli Labour Party is one of the most intriguing, as much for what it says about the future of any peace process as that of the party itself.

Labour may do better today than the polls suggest. But Labour's leader Amram Mitzna hasn't had a good election. His clear, principled and sharply different message of negotiation with the Palestinians, without Israel dictating which Palestinians, and unilateral withdrawal initially from Gaza, hasn't resounded as he might have hoped with an electorate which the polls show to be deeply tired and depressed with the conflict. By contrast Sharon's carefully packaged appeal to the centre ground as a strong man who won't talk to Arafat but who also wants a "path to peace" has, unless the polls have gone crazy, so far been much more successful.

In this he has been helped by some of the far-right non-religious parties whose ideology on the Palestinian question is yet more frighteningly extreme than that of the religious ones. At that same hustings last week, Uri Bank, the representative of Avigdor Liberman's National Union, declared on the subject of a Palestinian state, which Sharon has publicly told everyone who will listen that he supports: "There is a Palestinian state. It's east of the Jordan river. Some call it Jordan."

When the Labour Knesset member Colette Avitali rose to question whether the spectre of mass expulsions from the West Bank and Gaza raised by this chilling remark were compatible with "Jewish morality" there were shouts from a vociferous minority in the audience of "yes".

But Mitzna's biggest problem – beside, for much of the campaign, a level of disloyalty and unconcealed jockeying for position within his own party, which makes Labour in the early 1980s look positively disciplined – has been the man who has dominated the election without having a vote, much less the right to stand for office. The Arafat factor has almost certainly been critical in driving natural support away from Labour to other parties, including Likud.

It may be too much to say, as a Western diplomat put it this week: "Without Arafat, no Sharon." But there is something in the symbiosis between the two men which has made it possible for the Israeli Prime Minister to drive home the all-too-understandable and persuasive message that, until Arafat is removed there is no trustworthy partner for peace. Even if Sharon's conduct over the past two years – not limited to the famous assault on the PLO leader's Ramallah headquarters – has arguably done much to keep Arafat in place.

This raises the key question of whether Labour ought to accept an invitation to join a Likud-led government. Sharon certainly wants it. A coalition which depended on the religious right, let alone Liberman's monstrous cohorts, would not look good even to Sharon's strong sympathisers in Washington, let alone elsewhere, especially when Sharon wants to unfreeze negotiations of $4bn in grants and another $8bn in loan guarantees.

And there are certainly seductions for Labour. For a start there is the "Nixon Recognises Red China" argument that only the right can negotiate peace, because if it's done from the left, the right will sabotage it. There are signs that many Israeli voters believe it, or at least want to believe it. You can even sit, sipping coffee in a house in Gaza hours after the Sharon government had ordered its deepest incursion into the territory, and hear a middle-aged Palestinian related to a young man who is regarded as a Hamas martyr for his death in a gun battle with Israeli soldiers last year, improbably predict in private that there will be peace this year and that Sharon, wanting to make his mark on history, is the man to negotiate it.

Perhaps. But personally disinterested Labour people – like the analyst Uri Dromi, who worked for the Barak government – argue persuasively that there is little, if anything, in Sharon's record to suggest that he has changed his mindset in the way that the late Yitzhak Rabin undoubtedly did.

Labour will face huge pressure to join the Likud government – aided by the egos of those in the party who want ministries. But all they may end up doing is legitimising, at home and abroad, a minimalist approach from Sharon, which the Palestinians can never accept, however much he seeks to force them to concede.

Of course this could just be wrong. And maybe it is Labour's duty to listen to what he has to say. But without a guaranteed return to the final Clinton proposals, Labour would be wrong, in the long-term interests of the Jewish state, as much as those of the Palestinian state, to strike another Faustian bargain with the Prime Minister. In fact, their influence would not be lessened, and may be increased, by being in opposition on the just platform that holds out a hope of peace and which Mitzna has valiantly fought this election on.

Coalition might have been worth trying two years ago – though even that was doubtful – but what has it achieved since then? And as Uri Dromi said yesterday, Labour can always support Sharon from opposition if he does something it agrees with. The alternative is to see more of the same and be just as hobbled in attacking the government come the next election – which might not be that far away – as it is now, having been part of it for the past two years. It is unnecessary for the party to part with its leader because he has lost one election. But it would be a tragedy for it to part with the principles on which he fought it.

d.macintyre@independent.co.uk