The Dollar Account Affair and the 1977 Upheaval: How Public Trust in the Alignment Collapsed

Historical Background: From the Yom Kippur War to a Crisis of Trust (1973–1977)

By the mid-1970s, Israel was shaken. The Yom Kippur War shattered the aura of invincibility and exposed systemic failures. Public protests, inflation, and a growing cost of living combined with the sense of a detached political elite. The Alignment (Labor and its predecessors), which had ruled almost continuously since independence, appeared entrenched, self-serving, and unwilling to be held accountable.

Corruption Cases: The Murky Ground of 1976–1977

Several scandals deepened the sense of rot:

• The Yadlin Affair – Asher Yadlin, Labor’s nominee for Governor of the Bank of Israel, was convicted of corruption and jailed.

• The Avraham Ofer Affair – the Housing Minister faced corruption allegations and took his own life in January 1977.

• Other cases of cronyism and mismanagement within the Histadrut and state institutions reinforced the image of a system without checks.

The result: a sharp decline in public trust and a demand for new norms of governance.

The Dollar Account Affair (1977): Not a Technicality, but a Moral Failure

In March 1977, it was revealed that Yitzhak and Leah Rabin still held a dollar account in Washington, opened during Rabin’s ambassadorship, and never closed after his return—contrary to Israeli foreign-currency laws at the time. For ordinary citizens it might have been treated as a minor administrative violation, but for a sitting Prime Minister, it was perceived as a serious breach of public standards. A fine was imposed, but the deeper damage was moral: the gap between what leaders demanded of the people and how they behaved themselves.

Rabin tried to argue that Leah Rabin had managed the account alone, but he ultimately took political responsibility. On April 7–8, 1977, he announced his resignation as leader of the Alignment and his withdrawal from the election campaign.

Was There a “Deal” with the Attorney General?

There is a widespread belief in Israeli political discourse that an informal understanding was reached between Yitzhak Rabin and Attorney General Aharon Barak: Rabin would resign, and in return no legal proceedings would be opened against him beyond the fine, with only Leah Rabin facing formal charges. Supporters of this view point to the timing and the way the affair was resolved. For many in the public, it left the impression of a political-legal arrangement that further eroded trust.

A critical view of Rabin: Even if legally the case was minor, leaders cannot afford “gray zones.” After the trauma of the Yom Kippur War and a string of corruption scandals, the public demanded transparency and zero tolerance for misconduct. Rabin’s handling of the affair projected the opposite.

Why Did the Public Lose Patience?

1. Accumulation of scandals – not a one-off, but a pattern.

2. Perceived elitism and detachment – favoritism, Histadrut cronyism, and lack of accountability.

3. Leadership vacuum after the war – Israelis wanted higher standards of integrity.

4. An aggressive press and a restless public – the sense of “enough is enough.”

The 1977 Upheaval: Likud’s Victory and Begin’s Government

On May 17, 1977, came the political earthquake: Likud won the elections, the Alignment suffered a crushing defeat, and Menachem Begin formed a new government. The Dollar Account Affair served as an accelerator: it crystallized the feeling of public disgust and became the symbol of the Alignment’s loss of moral legitimacy. If the Yadlin and Ofer scandals undermined the foundations, the Rabins’ dollar account shattered the ceiling.

Legacy of the Affair

• Cemented expectations of personal accountability in leadership.

• Underscored that public ethics are not secondary—they are essential for trust.

• Demonstrated that the Israeli public is willing to replace a ruling party when it perceives a prolonged moral decline.

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