JERUSALEM -- The Israeli election campaign is presenting voters here with a clear question: Should the government continue extensive building of settlements in the occupied territories?
In the first weeks of the campaign, the candidates have defined this as their most fundamental difference. Prime Minister Yitzhak Shamir of Likud says yes, because the question is weighed on the right of Jews to live anywhere, especially in the land of their biblical forefathers. Labor Party challenger Yitzhak Rabin says no, because the settlements are provocative and Israel's domestic needs are greater.
In a speech yesterday, Mr. Rabin vowed to divert money from much of the settlement activity and put it into expanding Israel's economy.
Israel's armies moved into the Gaza Strip and the West Bank of the Jordan River in the 1967 Six-Day war. Israel has never annexed the territories beyond Jerusalem, but the Shamir government has sharply increased Jewish construction in Arab areas to assert its control of the land.
The United States and other Western nations have urged Israel to stop the settlements and return those lands in exchange for assurances of peace from the Palestinians and neighboring Arab nations.
Mr. Rabin, the Labor candidate, has said he would negotiate such an agreement immediately after he was elected. In a speech to an American Jewish group, he promised to shift up to $1.7 billion from construction of settlements to domestic needs inside Israel.
"I oppose settlements in the densely populated Arab areas," he said. "We need a shift in national priorities."
This election campaign has drawn the opposing view from Mr. Shamir much more bluntly than he has been willing to state it in the past.
"Tens of thousands of Jews are needed to settle here in these places so that there won't be room for a Palestinian state," he said at a rally of his Likud party at a West Bank settlement. "We have to guarantee that the state will be ours and only ours," he said.
Every estimate points to a tremendous push by the Shamir government to fulfill that goal.
Since Likud took power in 1977, the number of Jewish settlers living on the West Bank alone -- apart from East Jerusalem -- has increased from about 7,000 to more than 100,000. The number of Israeli settlers living in the occupied territories outside Jerusalem is expected to grow by 50 percent in two years to 150,000.
The number of houses in Jewish settlements increased by 65 percent in 1991, according to a report by a liberal group, Peace Now.
The government itself has issued no clear figures, in part to avoid provoking a U.S. reaction. The Labor Party, however, focuses on the settlements as a cause of what it contends are the failings of the Likud government. In its view, Mr. Shamir's government has spent money on creating roads and towns in the West Bank while ignoring Israel's domestic needs.
Unemployment in Israel has risen to 12 percent, and immigration from the Soviet Union has slowed to a dribble because there are no jobs for new arrivals, the government has acknowledged.
"Instead of devoting 2 billion to 4 billion shekels for political settlements, the taxpayers' money should be devoted to job creation," Mr. Rabin said yesterday.
So far, the Labor Party is leading Likud in the polls in advance of the June 23 election. But Likud has traditionally started from behind in the polls and come out ahead.
It is also unclear how solid the support is for Labor's arguments stressing domestic problems. To an extent that would be surprising in the United States, the Israeli campaign has focused little on domestic concerns. Instead, it seems preoccupied with the settlements and the Palestinian question, which often are argued in emotional terms.
"It dominates the debate," said Peter Medding, professor of political science at Hebrew University. "It really is an existential issue for Israeli politics that involves security, Jewish identity, democracy, morality, self-image, economics, the military . . . There is hardly an issue in Israel that is not touched by it."
The Likud campaign presents Mr. Shamir as a peacemaker. It argues that he has begun the peace negotiations without compromising on any issues, including settlements.
"The Likud and the right-wing parties are making settlements the main issue because they think they have the support of the main body of voters," said Emanuel Gutmann, a political science professor at Hebrew University.
But after years of strife in the territories, many Israelis just want the issue resolved. The Labor campaign asserts that compromise is necessary if the Mideast peace talks are to move ahead. Mr. Rabin has said he would strike a quick deal to give autonomy to Palestinians in much of the West Bank and Gaza Strip, and that he would end government subsidies for Jewish settlements there.
But even Mr. Rabin's position would be unlikely to completely satisfy the United States or the Arabs.
Mr. Rabin maintains that some settlements along the Jordan River and Golan Heights would have to be continued as a front line of defense against invasion from Jordan or Syria. And he also lays claim for Israel to all of Jerusalem, including Arab East Jerusalem seized from Jordan in the 1967 war.
The United States and other Western nations do not recognize Israeli sovereignty over any territory seized by Israel in the war, including East Jerusalem and the old city it contains.
Mr. Shamir has made some political capital by rejecting that position. But Mr. Rabin argues that the U.S. refusal to grant loan guarantees over the settlement issue is proof of his argument that the government is sacrificing domestic needs to continue settlements.