JERUSALEM, Dec. 24 (JTA) — Israeli Prime Minister Ariel Sharon struggled to keep his government together this week as economic and diplomatic developments threatened his unity coalition. Following lengthy Cabinet deliberations Monday, the government agreed to cut nearly $1.5 billion from the state´s 2002 budget. The Cabinet approved the spending cuts in a 22-6 vote, despite strong protests from Shas, whose five ministers opposed the cuts, and from Labor. As the Cabinet deliberated, there were stormy protests outside the Prime Minister´s Office by demonstrators from affected populations — students, the disabled and residents of the Negev. Sharon has little time to rest on his laurels, as he faces an even tougher battle passing the budget in the full Knesset. Shas and Labor legislators already have hinted they may oppose the bill unless deep cuts in social spending are revised. If the Knesset fails to pass the budget or extend the current year´s budget by Dec. 31, the government will fall. In remarks on Army Radio, Shas minister Eli Yishai warned Sharon that it would be "political suicide" to try to pass the budget as is. On the diplomatic front, coalition pressures were evident in the political ping-pong that accompanied the revelation of a new peace plan devised by Foreign Minister Shimon Peres and Palestinian officials. Matters were not helped by a Christmas Eve showdown with the Palestinians — and world opinion — over Israel´s refusal to allow Palestinian Authority President Yasser Arafat to attend midnight mass in Bethlehem. Most Palestinians, including Arafat, are Muslim, yet in recent years the Palestinian Christmas celebration has taken on a strongly nationalistic tone. In addition, the celebrations strengthen Arafat´s claim to represent Christian interests in the Holy Land. Arafat has been stuck in Ramallah since a series of devastating Palestinian terror attacks on Israel earlier this month. Retaliatory Israeli airstrikes destroyed Arafat´s helicopters and the Israeli army tightened its closure around Palestinian towns. Some Israeli officials, including Peres and Defense Minister Benjamin Ben-Eliezer, argue that barring Arafat from Bethlehem on Christmas Eve would harm Israel´s public image. But the Security Cabinet decided that Arafat must do more to crack down on terror, despite a campaign of arrests of Hamas and Islamic Jihad militants that left seven Palestinians dead in clashes with Palestinian security forces this weekend. Israel demands that Arafat arrest the Palestinians who assassinated Tourism Minister Rehavam Ze´evi in October, who are still at large in Palestinian Authority territory. At the same time, Ben-Eliezer eased some restrictions in the West Bank to make it easier for Christian pilgrims to travel during Christmas. Israel has responded warily to the Palestinian clampdown on terrorist groups. The crackdown prompted Hamas on Friday to announce a temporary suspension of suicide attacks inside Israel. Israeli officials noted that Hamas did not rule out attacks on Israelis in the West Bank and Gaza Strip. Analysts noted that Hamas had not decided to abandon terror altogether, but merely to postpone attacks for now in the interest of "Palestinian unity." They also suggested that the decision could have been made in exchange for a Palestinian Authority commitment to refrain from rounding up Hamas leaders, leaving the group´s terror infrastructure intact for the future. Meanwhile, officials from two other groups — Islamic Jihad and the Al Aksa Martyrs Brigade, an arm of Arafat´s Fatah Party — pledged to continue attacking Israel. A shooting attack Monday underscored the fragility of the security situation. Gunmen from the Al Aksa Martyrs Brigade shot an Israeli driver near Tulkarm, critically wounding the man. The organization said the attack was a response to Israel´s Christmas snub. The government´s use of the symbolic arena of Christmas in Bethlehem to make its case for fighting terror drew world and domestic criticism. The Vatican, United States and Europe were critical of the decision. The Latin Patriarch made a Christmas eve trip from Jerusalem to Ramallah to see Arafat. Even Israel´s Foreign Ministry refused to explain the government decision — prompting a tit-for-tat exchange with the Prime Minister´s Office, which challenged the purpose of the Foreign Ministry´s information department.