1. Prime Minister Sharon welcomed the new cabinet ministers, and wished them luck in their new positions.

2. Regarding the Palestinian Authority (PA) elections, Prime Minister Sharon
said: “After the death of the Chairman of the Palestinian Authority, the
temporary Palestinian leadership announced, that according to the
Palestinian constitution, they intended to hold elections for the post of
Chairman of the Palestinian Authority within 60 days, and they set the 9th
January 2005 as the date of the elections.  With this declaration we said
that we would give the Palestinian every aid needed in order to hold proper
elections, including freedom of movement for candidates and voters, a
different deployment of the IDF, participation of residents of eastern
Jerusalem and assistance to international observers.  On 26.12.04, the
Cabinet decided to adopt the arrangements that had been worked out between
us and the Palestinians, and to hold the elections according to the same
guidelines as the 1996 elections.

The election, which was held on Sunday, which we felt was very important
that it be conducted properly, passed without any problems from our point of
view.  Israel fulfilled all its obligations.  The elections, including
Israel’s actions, were conducted under the inspection of hundreds of
international observers, including the former US President, Jimmy Carter and
former French Prime Minister Michel Rocard.  There was ongoing communication
between the international inspectors both before and during the elections,
and many problems were solved accordingly.  Israel was praised for the
manner in which the election was held and for all the help given.  This
praise was a result of the combined and coordinated work of various bodies,
which worked extensively and around the clock, in order that Israel would
not be viewed as having caused the elections to fail.”

Prime Minister Sharon thanked the IDF and the security establishment for its
operations and for the IDF’s deployment in Judea, Samaria and Gaza before
and during the elections, which on the one hand assured highest security,
and on the other hand allowed for the elections to take place as had been
assured by Israel.  Prime Minister Sharon also thanked the Foreign Ministry
for planning the operations of the foreign inspectors and for working with
the international community before and during the elections.  The Foreign
Ministry’s situation room was open 24 hours a day and provided direct and
rapid responses to inquiries from the international community.  The fact
that there were no complaints from the international community on the way
Israel acted during the elections demonstrates the great efforts and
successful operation.  Prime Minister Sharon thanked the Israel Police and
especially the Jerusalem District Police for their part in the elections,
which was especially sensitive and complicated.  The Israel Police
demonstrated the necessary sensitivity while at the same time retaining
order and security for Jerusalem citizens, and acted exactly according to
the principles agreed upon by the government.

The Prime Minister also thanked the Postal Authority employees and legal
advisors who all assisted in the smooth conduct of the election.

Prime Minister Sharon announced that he intends to speak to the Palestinian
Authority Chairman Mahmoud Abbas to congratulate him on his election
victory, and to wish him luck and offer Israel’s cooperation.  Prime
Minister Sharon estimated that he would soon meet with Chairman Abbas in
order to advance issues on the agenda, first and foremost the security issue
and the Palestinians’ actions against terrorism and its infrastructure.

3. Defense Minister Shaul Mofaz, in his briefing, noted that the past week
was marked by two main events that characterized the confrontation between
positive elements that champion the diplomatic process and the forces that
are working to wreck it.  The elections were an expression of the process of
change within the PA, as well as the establishment of a different
leadership; in contrast was the Hezbollah attack in the north, the timing of
which - on the day of the PA elections - constituted part of the
comprehensive effort by both internal and external terrorist elements to
wreck the positive trend in the PA.  The Defense Minister briefed ministers
on the security establishment’s operations ahead of - and during - the
elections, which allowed freedom of movement for the candidates, voters and
observers.  The Defense minister emphasized that after the elections, IDF
operational activities were returning to their previous formats.

Defense Minister Mofaz also discussed the continuing decline in the number
of terrorist attacks and the significant decline in the number of successful
suicide attacks inside Israeli territory.

Defense Minister Mofaz discussed the phenomena of refusal and violence
against the security forces, and referred to the evacuation of the outpost
at Yitzhar and the letter by officers of the Binyamin area brigade.  He has
directed the IDF to respond quickly and determinedly in order to send a
sharp and unequivocal message.  The Defense Minister said that there are
enough legal tools in the State of Israel’s penal code to deal with the
situation.

Foreign Minister Silvan Shalom discussed the PA elections and commended
Foreign Ministry personnel for their responsible work and successful
cooperation in doing their utmost to assist a proper election process.  He
said that Abu Mazen’s victory is likely to constitute a milestone for the
Palestinian people, who have elected a leader with a clear mandate for
change; the open question is whether he has the desire and the determination
to change.  The Foreign Minister noted that Abu Mazen’s elections speeches
included extremist statements and declarations that Israel must not ignore.
However, Abu Mazen also declared in his speeches that he opposes the way of
violence.  The Foreign Minister called on Abu Mazen to show the desire to
change course, immediately deploy the Palestinian police in Gaza in order to
bring about a halt in the firing of Kassam rockets at Sderot and Gush Katif.
The test is now, the Foreign Minister emphasized.

Foreign Minister Sharon said that since Arafat’s death and in the wake of
the PA elections, Israel has been inundated with high-ranking visitors from
abroad.  He briefed ministers on his talks regarding the flare-up in the
north, during which a Hezbollah bomb killed Capt. Sharon Elmakayis, and
which resulted in the death of a French soldier serving with the UN forces
in Lebanon.

Foreign Minister Sharon also discussed the special session of the UN General
Assembly to mark the 60th anniversary of the liberation of the camps and the
recent visit to Israel by Turkish Foreign Minister Abdullah Gul.

Finance Minister Benjamin Netanyahu briefed ministers on the 2005 budget and
concomitant reforms, which constitute a stage in the Government’s economic
plan.  He noted that in 2003 we were engaged in halting the deterioration,
in 2004 we were involved in the transition to growth and in 2005 we will
strengthen growth and devote attention to social issues.  The Finance
Minister said that the Government’s economic policies have proven themselves
so far: The economy moved from negative growth to a 4.2% growth rate last
year; this growth made it possible to lower taxes by billions of shekels for
all strata of the population.  The main points for 2005 will be: a)
Continued tax reductions worth approximately NIS 2 billion; b) Maintaining
the framework of Government expenditures and the deficit; and c) Continuing
the reforms that are the heart of economic activity.  Considerable sums have
been allocated in the 2005 budget to social issues - support payments for
the elderly, school lunch programs, the health services basket, rent
assistance for new immigrants living on the periphery and, of course, the
Dovrat report.  The foregoing is in addition to the comprehensive aid
program for local authorities.  The Finance minister emphasized that the
supplements that will be given in the framework of the coalition agreements
will require across-the-board cuts because there is no intention of breaking
the budgetary framework.

4. The Cabinet, in accordance with Article 25a of Basic Law: The Government decided to appoint the following deputy
ministers:

* MK Orit Noked will serve as Deputy Minister in Vice Premier Shimon Peres’
office;

* MK Eli Ben Menahem will serve as Deputy Housing and Construction Minister;

* MK Michael Melchior will serve as Deputy Education, Culture and Sports
Minister.

The Knesset will be duly informed of the above appointments, as required by
law.

5. The Finance Ministry Accountant-General briefed ministers on various
issues regarding the privatization of Bank Leumi.

6. Education, Culture and Sports Minister Limor Livnat and Shlomo Dovrat
briefed ministers the Dovrat Committee report.