The Peres speech and the Knesset vote faithfully reflect the Labor Party's position on the final status settlement with the Palestinians. Labor supports a Palestinian state as an historic imperative, and while its leaders vow during the election campaign to preserve the integrity of Jerusalem, there can be no doubt that a Labor government will be ready to accept a "territorial compromise" in the city and re-divide it.

I do not believe a sovereign Palestinian state is an historic imperative, any more than the triumph of socialism - which the same leftist parties once touted as inexorable - was preordained. Nor do I think that Israel can achieve peace only by making egregious unilateral concessions. On the contrary. I am convinced that Labor's way will endanger Israel and cause war.

My position on the peace process has been consistent. I say now precisely what I said in the 1996 election campaign: Israel should adhere to the Oslo agreements because democratic governments honor accords signed by their predecessors. But the only way to make these agreements viable is to insist on reciprocal fulfillment of Palestinian commitments, particularly in the fight against terrorism. With reciprocity, "territory for peace" may work. Without it, we shall have "territory for terrorism", which is sheer insanity.

The consistency of my position has disappointed both those on the right, who wanted me to scuttle the Oslo, Hebron and Wye agreements; and those in the leftist opposition who wanted me to put my faith in a chimeric "New Middle East" and overlook Palestinian non-compliance.

It was this middle-road consistency which caused the fall of the government. The right withdrew its support, and the left reneged on its promise to provide the government with a "safety net".

Yet my aims remain the same: maximum self rule for the Palestinians, with minimum risk for Israel. After a half century of hardship, poverty and humiliation caused by a self-inflicted catastrophe in 1948, it is time the Palestinians had peace, prosperity and progress. They can thrive and flourish if hostilities truly cease, if there is free movement of people and goods between Jordan, Israel and the Palestinian entity, and if the Palestinian economy adopts transparency, accountability and free market principles.

Over 95% of the Palestinians are already ruled by a Palestinian administration. But a Palestinian state and all it implies would threaten Israel's security

If peace is to prevail, the Palestinians must not have a large army equipped with tanks, missiles and artillery, a contiguous border with Jordan, and the capacity to form alliances with such regimes as Iraq and Iran. Israel cannot relinquish control over air space, strategic areas and vital water resources, and must retain security supervision over sea-ports and airports. Jerusalem, never the capital of any other nation, must stay Israel's undivided capital.

To return to Labor's policies of unilateral withdrawals, indifference to the Palestinian coddling of terrorists, and acceptance of virulent incitement in official Palestinian pronouncements and school books is to turn the clock back to the bad old days of fear and terror. It is a prescription for Palestinian irredentism, and the radicalization of the whole land mass stretching from Kfar Sava and Jerusalem to Baghdad and Teheran. It ensures violence, terrorism and war.

The return to Labor rule would be disastrous in the economic sphere, too. The Likud-led government has begun a transformation of the Israeli economy - moving it from irresponsible spending and stifling centralization to budgetary prudence and sound free market principles. Without such a change Israel will be unable to compete in the coming era. In three years we have halved inflation, cut the budget to the tune of NIS 8 billion, dramatically reduced the trade deficit, privatized more than all previous governments put together, deregulated the currency, attracted more foreign investments than ever, instituted the "computer for every child" project and a longer school day in development towns and the minorities sector, and survived the worldwide economic crisis - all without raising taxes.

The economy is now poised to receive and integrate hundreds of thousands of olim, to expand its high-tech industries to the point of making Israel the second largest "Silicon Valley" in the world, and to begin real, large-scale and solid growth. It is no wonder that the world's leading economists praise our performance with unalloyed superlatives.

As in all major transitions, some painful side-effects are inevitable. In Israel it has taken the form of a two percent rise in unemployment. That the number of Palestinian and foreign workers is double that of the jobless indicates that the problem is more social than economic, but this does not diminish the humiliation and hardship of the unemployed. The latest statistics are encouraging - unemployment has been going down steadily - and I have no doubt that if we continue our policies the number will reach an acceptable level.

In the next few years Israel will face crucial decisions. The negotiations with the Palestinians on the final status will begin, and the negotiations with Syria will resume.

To secure our future we must not only achieve safe agreements with our neighbors, but make economic conditions and the quality of life in Israel attractive enough to draw Jews from the West and the former Soviet Union.

Internally, too, much must be done. We shall have to ease tensions between the secular and religious, Arab and Jew, Diaspora Jews and Israelis. The intensity of these tensions is often exaggerated, but they do exist. They should be ameliorated through dialogue and compromise, not judicial coercion, abrasive legislation and offensive rhetoric.

These are daunting challenges, and the people of Israel will soon have to decide who will best lead the nation in meeting them. I am sure they will make the right choice.