Netanyahu is trying to keep coalition partners onside

The country's main trade union federation, the Histadrut, is angry about the government's plans to sack thousands of public servants and slash the pay of many who remain.

On Sunday, the organisation declared a "labour dispute", the legal prerequisite for it to ballot members on strike action.

If the unions act, the resulting stoppages would hit government offices, most transport by land, sea and air, and municipal services.

Many private businesses would also be affected, potentially crippling the country's economy.

Out of balance

Less than a week ago, Finance Minister Benjamin Netanyahu unveiled an economic programme which would cut 11.4bn shekels (�1.5bn) off government spending to try to close a budget gap estimated at as much as 6% of national output.

The Israeli government has been struggling with its finances for the past two years as the ongoing conflict with Palestinians in the occupied territories of Gaza and the West Bank combines with the world economic downturn.

US military aid is a fashion accessory in Tel Aviv

Israel's hotshot technology industries imploded like tech stocks the world over, just as tension between Israel and the Palestinians boiled over into the second intifada, or uprising.

The result was two years of economic contraction, slumping tax revenues, and a budget that was spiralling out of control - hardly helped by Prime Minister Ariel Sharon's need to buy off coalition partners with spending promises.

Extra money has had to be found for religious schools, for large families and Israeli settlements in Palestinian areas - all priorities for the religious right - as well as higher defence and security spending.

US help

So in order to square the circle, the government needs to find other ways of cutting spending.

It is desperate for a massive package of US aid over and above the $4bn or so Israel receives every year.

After a false step last week - Israeli officials heralded a $10bn package they had been privately promised before the US had announced it itself - Mr Netanyahu made it clear that the money was dependent on sorting out a coherent economic plan.

But the Histadrut accuses the government of breaking its wage and bargaining agreements.

"The Histadrut will not be the victim of the economic programme, and will fight against it without compromise to cancel it," said Histadrut chairman Amir Peretz.