JERUSALEM, Dec. 24 (JTA) — Prime Minister Ariel Sharon´s highwire act was exposed in all its fragility this week by revelations of a new peace plan devised by Shimon Peres and the speaker of the Palestinian Parliament. When details of the plan leaked over the weekend, Sharon blasted it as "seriously harmful to Israel." Right- wing ministers who remember how Peres, the foreign minister, foisted the Oslo accords on Yitzhak Rabin — accords that the right regards as an unmitigated disaster — demanded that Peres be fired. Yet it was Peres who finally brought Sharon around. Threatening to pull his Labor Party out of the national unity government, Peres forced Sharon to admit on Monday that he had been aware all along of the talks with veteran PLO negotiator Ahmed Karia, and that he had approved them. Fighting to control the damage, Sharon´s office said Monday that the talks were intended only to promote a cease-fire between Israel and the Palestinians. The flap over the peace plan highlights the political balancing act Sharon is engaged in as he tries both to keep his coalition together and deal with the Palestinians. In any case, that disagreement came amid an international controversy over whether Israel would allow Palestinian Authority President Yasser Arafat to attend Christmas Eve celebrations in Bethlehem, an event watched by the entire Christian world. Since taking office last March, Sharon has insisted that Israel will not conduct diplomatic negotiations with the Palestinians as long as attacks on Israel continue. Peres, on the other hand, argues that Israel must show the Palestinians the promise of diplomatic gains if it wants them to stop attacking Israel. In this case, it seems that Peres´ worldview has trumped Sharon´s. The talks that Sharon claims were limited only to a cease-fire instead produced a diplomatic plan that is roiling Jerusalem. Under the plan, as leaked Sunday to the Israeli daily Yediot Achronot, the two sides would enforce a cease- fire outlined by CIA Director George Tenet and begin immediately to implement the recommendations of the U.S.- sponsored Mitchell Committee. That committee called on Israel to end its closures on Palestinian areas, freeze settlement activity in the West Bank and Gaza Strip, transfer frozen funds to the Palestinian Authority and stop "targeted killings" of terrorists. The Palestinian Authority is expected to crack down on terrorist groups, collect illegal weapons and create a single armed body in place of the current multiple factions whose lines of authority are unclear. All this would take place within eight weeks, according to the Peres-Karia plan. Israel then would recognize a Palestinian state in the Gaza Strip and on the 42 percent of the West Bank where the Palestinians already exercise full or partial control. That represents a turnaround from the traditional Israeli bargaining position, which had dangled the possibility of a Palestinian state as the end product of negotiations, thereby inducing the Palestinians to sign a final peace deal. Under the new plan, statehood would become an immediate benefit to lure the Palestinians off the battlefield and back to the negotiating table. Talks would then commence on the issues that derailed previous efforts to reach a peace accord – final borders, Jerusalem, refugees and other issues. Israel would like to conclude those negotiations within one year, and then have two years to implement the agreement. The Palestinians demand a shorter timetable: Nine months for talks, 18 months for implementation. Peres told his Labor Party colleagues he believed the agreement could win full endorsement from both Israeli and Palestinian leaders "within weeks." Others were not so sure, however. Leading Labor dove Yossi Beilin called the plan "an idea that Arafat already rejected a month ago. Sharon has agreed with many things that he knows will not be implemented, because he has a tremendous interest in keeping Peres inside the government." On the Palestinian side, Karia effectively confirmed the existence of the negotiating channel. Other Palestinian sources, however, said their side demanded more than 42 percent of the West Bank even in the interim phase. For public consumption, at least, Palestinian officials continued to insist that they would accept nothing less than the entire West Bank and Gaza Strip and half of Jerusalem. Palestinian Information Minister Yasser Abed Rabbo told the Jerusalem Post that the plan was just another means of "legalizing the occupation." "This is another form of the prolonged interim solution, which will reinforce the present situation and enable Israel to annex most of the Palestinian territory," he said. In his party briefings, Peres insisted that Sharon was fully apprised of the negotiations, despite the premier´s initial protestations. Peres was so incensed at Sharon´s lying that he reportedly threatened to have Labor vote against the budget. Failure to pass a budget by Dec. 31 is considered a major sign of weakness in a prime minister, and can mark the beginning of the end for a government. The budget ultimately passed the Cabinet on Monday night, but the prime minister´s about-face followed the noises from the Peres camp. Israel Radio reported that top Sharon aides claimed they had been "forced" to attack the Peres-Karia negotiations in order to curry favor with "other elements" in the coalition. Such accusations seemed likely, in turn, to arouse anger on the far right, which also threatens Sharon. There is a steady drumbeat of support within the rightist National Union-Israel, Our Home faction to secede from the government, and the latest Peres affair is likely to reinforce that demand. Binyamin Elon, the tourism minister and leader of that party, demanded that Peres be fired. But it is from the left that Sharon is likely to face his most serious threat right now. If — and it still a big if — Palestinian violence continues to subside, and if Arafat continues to convince American and European observers that he is at last taking meaningful steps against terror groups, the onus will be on Sharon to show that he is serious about pursuing peace. If Sharon hesitates, the secessionist pressures in Labor may grow too strong for even the most pro-unity elements in the party to resist. Sharon´s turnabout Monday appeared to avert the immediate danger of a split in the government. But seasoned observers suggested that the tensions exposed by news of the Peres-Karia negotiations had brought a split much closer. For example, Avraham Burg, the Knesset speaker and a leading Labor dove, called Monday for his party to secede from the coalition at once. Until now, Peres has been reluctant to join the doves demanding secession. The fact that he allowed himself to be quoted Monday uttering such a threat might indicate a sea-change in Labor´s internal balance of power. Defense Minister Benjamin Ben-Eliezer, who also has consistently supported Labor´s presence in the unity government, warned Sunday that he would resign "if Arafat makes serious and effective efforts to curb the terror and the government ignores them." On Monday, Ben-Eliezer told the Cabinet that Palestinian attacks had declined sharply. Still, Ben-Eliezer was not yet prepared to say that Arafat had made a "strategic decision" to rein in the terrorists and prevent attacks both inside Israel and against Israelis in the territories. Further straining Labor-Likud relations was the row that developed over Sharon´s decision to prevent Arafat from going to Bethlehem on Monday to celebrate Christmas, as Arafat has done each year since 1995. Though Arafat and most Palestinians are Muslim, the annual Christmas celebration has become an expression of Palestinian nationalism — and an opportunity for Arafat to position himself as the guardian of Christian sites in the Holy Land. All the Labor ministers voted against this in the Security Cabinet, but Sharon ignored them — and calls from around the world — to relent. Even Israel´s president, Moshe Katsav, urged the government to think again to avert a public relations debacle. The episode provided ammunition for those Laborites who say Sharon´s goal is to destroy Arafat and drive him from the region, even if the Palestinian Authority does belatedly crack down on the terror groups it has allowed to flourish. These Laborites say Sharon, though ostensibly committed to the Mitchell Committee recommendations — including a settlement freeze — in fact will do everything to avoid reaching the point where he has to implement them.