In an angry cabinet exchange, the Prime Minister, Yitzhak Rabin, said the government would simply have to admit it had made a mistake: the Finance Minister, Avraham Shohat, responded furiously: "Just like we made a mistake in Oslo."
Mr Shohat, humiliated by the tax withdrawal, says he will not resign. But the imbroglio - after the Labour Party fought hard for the tax last year - reinforces the image of Mr Rabin as someone who cannot make up his mind, reverses course easily but insists on handling everything himself or through a kitchen cabinet of close aides.
It is still 18 months before he has to lead his party in an election but Mr Rabin's coalition is looking increasingly ragged. Even before the latest bombing, the political momentum behind the 1993 peace agreement with the PLO was disappearing: Israelis believe they have failed to win greater security and Palestinians see settlements still expanding with no redeployment of Israeli troops out of West Bank towns.
Mr Rabin is putting pressure on Yasser Arafat to crack down on the militants of Islamic Jihad and Hamas in Gaza by linking that to the reopening of Israeli borders to Palestinian traders and labourers. It is unlikely, however, that the PLO leader has thepolitical strength to break up the networks that organise suicide bombings unless Israel's West Bank troops are redeployed and elections are held, as agreed in 1993.
The government might be able to turn this round. Before the Beit Lid attack two weeks ago, 41 per cent of Israelis wanted to implement the accords on Palestinian autonomy but 32 per cent favoured waiting to see if Mr Arafat cracked down in Gaza and Jericho.
The turn against the accords is, therefore, recent and based on disappointed expectations of improved security rather than rejection of the whole idea of handing over the West Bank.
The ban on Palestinians seeking to enter Israel from the West Bank may end sooner than the closure of Gaza. Israel's military response on the West Bank has been low-key with no sign of increased patrols in large towns such as Ramallah and Nablus. Palestinian security police in Jericho say that, in practice, they operate in all other West Bank towns but claim they do not carry weapons beyond the narrow boundaries of Jericho itself.
Despite disillusion with the 1993 peace deal, the right-wing Likud opposition has yet to come up with a practical alternative and is unlikely to reoccupy Gaza. Palestinians warn that continued settlements and no Israeli withdrawal is stoking a second intifada, or uprising, similar to that which began in 1987. This time it is likely to involve bombs, not stones.
n Yasser Arafat snubbed Jordan yesterday and launched the Muslim Ramadan fast in the Palestinian territories a day ahead of Amman for the first time, AFP reports. The move is part of a dispute between Jordan and the PLO over custody of Jerusalem's Muslimshrines.Reuse content