Police are investigating the diversion of funds from the Histadrut, the trade union power-base of the ruling Labour Party, to finance the campaigns of party officials.
Yisrael Kessar, once chairman of Histadrut and now transport minister, is accused of diverting 60 million shekels (£13m) to finance his failed attempt to gain the Labour leadership against Mr Rabin in 1992. The investigation has been going on for months but the scandal erupted when a Histadrut official turned state's evidence.
The Histadrut, to which 67 per cent of Israeli workers nominally belong, has immense wealth and is one of the largest employers in the country. The money diverted was allegedly used to finance primary campaigns within the Labour Party which are of critical importance in Israeli politics because voters vote for a party list. Somebody who wins enough primary votes to go to the top of the party list in the general election is likely to enter the Knesset.
Having sunk low in the polls last year Mr Rabin is in a poor position to withstand a scandal. Nahum Barnea, a political columnist, wrote in Yedioth Aharonoth yesterday that the "bombshell" might destroy Mr Rabin. He said: "His ship of state is breaking up and sinking."
Relations between Labour and Histadrut, long political Siamese twins, had already been strained last May when Haim Ramon, a popular Labour leader, defied Mr Rabin to win election as head of the trade union federation on a reform ticket.
Expelled from the party, he is now negotiating to return to Labour which is looking around with some desperation for political leaders who might save the party from defeat in next year's general elections.Reuse content