Rabin Survives Crisis Over Budget Priorities : Israel: Cabinet OKs spending plan after rancorous debate and threats of revolt over allocations for settlements, immigrants and education.

JERUSALEM — Prime Minister Yitzhak Rabin’s new government survived its first crisis Tuesday, a rancorous debate over how to spend Israel’s anticipated “peace dividend.”

The Cabinet’s left-wing members threatened to vote against next year’s $40.7-billion budget because it does not shift more money from building settlements on occupied territories, and then protecting them, into creating jobs for new immigrants.

The interior minister, the leader of a key religious party in Rabin’s coalition government, said he might go further and quit the Cabinet because of reduced spending on religious education and development of those West Bank settlements already established.

And the housing minister, a member of Rabin’s own Labor Party, denounced the finance minister, a Labor Party colleague, for the massive cutbacks he proposed in housing even within Israel itself.

For three days, the drama had mounted as the aggrieved ministers complained bitterly on radio and television and in the press. Arye Deri, the interior minister, even boycotted a Tuesday morning session of the Cabinet to demonstrate his anger.

Deri, whose party holds six of the coalition’s 62 seats in the 120-seat Knesset, said he would “not be part of the collective responsibility” for the policy of limiting settlement building.

But after a dozen or so small compromises, mostly shifting funds from one program to another more favored by Cabinet members, and by restoring about $65 million demanded by Deri for religious schools and settlements, Rabin prevailed Tuesday evening, and the Cabinet endorsed the budget.

One left-wing member of the Cabinet, Immigration Minister Yair Tsaban, did vote against the proposal, complaining that still too little money was going for new jobs; three other ministers from the Meretz bloc abstained, saying the budget does not reorder fiscal priorities as much as they wanted.

“This budget does not provide answers for the most elementary expectations the public has of the new government,” said Tsaban.

After the issue of war or peace, the question of how much which interest group gets in government funds is what drives politics here, and Deri, whose Shas Party provides Rabin’s slim majority in the Knesset, the Parliament, extracted his price for the party’s continued support.

“I cannot be in a government that goes against my basic principles,” he had warned, objecting to the deep cuts in government funds for religious high schools and settlements begun over the past decade. “This is not what we joined the government for. If other coalition partners agree to these reductions and they have a majority, let them do it without us. . . . I don’t think they can.”

The budget, which becomes effective in January, now goes to the Knesset, where the opposition parties, particularly Likud, will probably seek to reinstate some of the programs eliminated by Labor.

Rabin has a slim parliamentary majority, with just 62 of the 120 Knesset seats, and Shas’ backing is crucial. Rabin, however, can also count on the support of five other members and the opposition’s continued disarray after their election setbacks.

The basic left-wing criticism was that the budget did not divert enough money from Jewish settlement of the occupied territories to investment in Israel itself to stimulate economic growth. The budget forecasts a drop of less than 1 percentage point in the national 11% unemployment rate despite plans to add 22,000 people to the government payroll in the next year.

The budget slashes housing allocations by one-third compared with 1992, reducing them to about $3 billion.

Rabin had already frozen new construction in the West Bank and other occupied territories, canceling about 6,000 units planned by his predecessor, Yitzhak Shamir. Citing costly legal guarantees, however, he is allowing builders to complete about 11,000 units already under construction over the objections of Meretz members of the Cabinet.