During this period, the Palestinian movement of resistance to Israeli rule developed. The politics of the Palestinian movement at this stage resembled those of the Egyptian President Nasser - socialist and indifferent to Islam. One of the most important Palestinian leaders, George Habash, was a Christian. While some people in the Palestinian movement were sympathetic to Communist China, the pro-Soviet tendencies in the movement quickly suppressed the pro Chinese tendencies - if only because the Soviet Union was able to supply more weapons and money to support the Palestinian cause than China could.
During this time Israeli intelligence gave secret support to the Muslim fundamentalist group Hamas. This was in order to create a split in the Palestinian movement. Hamas opposed such mainstream Palestinian leaders as Yasser Arafat because of their lack of commitment to Islam and their friendship with the atheistic Soviet Union.
In 1970 President Nasser of Egypt died. His successor, President Anwar Sadat, wanted to make some drastic changes in both foreign and domestic policy in Egypt, but he could not do so until he had proven himself in front of his own people and the Arab world by making an effective stand against Israel.
His justification for an attack on Israel came in the early summer of 1973. The Israeli government in partnership with private business wanted to build a resort city called Yamit on the sea coast of the Sinai Peninsula which Israel had seized from Egypt in the 1967 war.
To make room for the new city of Yamit, the Israeli government forcibly moved 10,000 Arab villagers from their homes. President Sadat of Egypt used this as his reason for war.
Sadat began his war with a surprise attack on Israeli military positions in the Sinai. This attack took place on Yom Kippur, the most solemn day in the Jewish year when even many of the most religiously indifferent Jews refrain from as much activity as possible - including military activity.
The attack took place during the Muslim holy month of Ramadan when good Muslims do not eat until after nightfall. So the Israeli troops thought they could relax their guard and take off a day for Yom Kippur, confident that the Egyptian soldiers would be too weak from fasting to do anything.
The Egyptian troops quickly pushed the Israeli troops back. The Egyptians fought surprisingly well compared to their performance in the 1967 war. But soon both armies began to run low on military supplies of all kinds. The USA supplied Israeli's needs so that the Israeli army was able to regain most of the ground it had lost. But when the Soviet Union started to resupply the Egyptian army, there was a crisis behind the scenes. The USA threatened that if the Soviet government supplied Egypt, it could lead to a Soviet American conflict - meaning World War.
So the Soviet Union backed down. It was a major defeat for Soviet influence in the Middle East.
In Israel, the Yom Kippur War was also a major defeat for the ruling Labor Party. There were accusations of incompetence about the Labor Party's management of the war. How had Israeli intelligence - the best in the world - failed to know that the Egyptian army was planning an attack?
It was alleged that Labor's negligence had caused the high casualty rate in the Israeli Army - the needless death of many soldiers who in a small country like Israel would be hard to replace.
For the first time in the history of Israel, the Labor Party lost the parliamentary elections to the right-wing Likud Party. The new Likud Party Prime Minister Menachem Begin had once been branded as a fascist and a terrorist by the Labor Party leaders.
In 1974 only a few months before President Richard Nixon resigned, he visited both Israel and Egypt. Egypt went from being a client of the Soviet Union to being a client of the USA. While Israel got more American foreign aid than any other country, Egypt now got the second largest amount of American aid.
As another reward for his new alliance with the USA, Egyptian President Sadat received an agreement made in person with Israeli Prime Minister Begin, giving Egypt back the Sinai Peninsula - except for the Gaza Strip.
Just as Israel moved to the right after the Yom Kippur War, so did Egypt. Under the socialist-minded rule of President Nasser, Egyptian businesses had been heavily taxed to support social programs to bring the great majority of Egyptians out of the desperate poverty in which they lived. Now, under President Sadat, the high taxes were cut and private businesses flourished. The social programs were also cut and the living standard of ordinary Egyptians fell. As their lives got harder, many of the poor turned to the underground Muslim fundamentalist groups. Although these groups had once received secret support from the CIA and Israeli intelligence, now they denounced President Sadat for selling out Egypt to the USA and Israel.
After settling its southern border by turning over the Sinai Peninsula to Egypt, the Likud government expanded Israel's northern border and took over a large part of southern Lebanon. This was to prevent raids and artillery attacks by Palestinian guerrilla groups which had cost many lives in the Israeli border communities of Ma'alot and Kiryat Shemona. To police the Muslims of southern Lebanon, Israel armed and trained a militia of Lebanese Christians. This militia was closely connected with a fascist party called the Phalange.
Between Likud and Labor were the small religious party which could provide a swing vote in the Knesset, Israel's parliament. Religious Jews tended to be poor and Likud - followed by Labor began to offer them subsidies of various sorts and privileges. For example - students at Yeshivas - orthodox Jewish seminaries - cannot be drafted (and this is in a country where women are drafted.)
Instead of building more of the low-cost government housing that had been built inside Israel proper by the Labor government, Likud's Ministry of Housing, offered tax breaks and subsidies to Jews who wanted to move into the West Bank occupied territories or the Gaza Strip. One hope that was openly expressed was that where these Jewish settlements were clustered thick enough, the boundary of Israel proper would be expanded to include them if negotiations ever had to be done about giving up Israeli control of the West Bank.
To build these settlements, pasture lands and olive groves were taken away from Palestinian villages. Water was diverted from the villages to the settlements, leaving the Palestinians with no way to irrigate. If any Palestinian harmed settlers, Israeli troops would come and demolish houses in the village of the guilty person. The houses of the innocent as well as the guilty were destroyed and Palestinians were forbidden to build new houses. Only the settlers had that right.
The settlements were inhabited mostly by religious Jews who believed it was their sacred duty to displace the Palestinians. Even though many in the Labor Party realized that building settlements on Palestinian land was potential dynamite, the Labor Party did little to stop the settlementsbecause it was competing with Likud for the support of the religious parties.
In 1978 the Shah of Iran, one of the closest allies of the USA, was overthrown. Because of the size and oil riches of Iran and its importance as an intelligence listening post, this was a bigger defeat for the USA than the Vietnam War. In the words of ex-President Richard Nixon, Iran and Israel had been America's "cops on the beat" in the Middle East - a phrase that gives a good idea of what much of the American leadership really thinks of the people of the Middle East.
When the ousted Shah needed cancer surgery and talked about going to a hospital in the USA, many Iranians believed the Shah's arrival in the USA would be a signal for a coup against the new fundamentalist Muslim government by the Iranian army and police - which were still controlled by officers loyal to the Shah.
A group of Iranian students seized the staff of the American Embassy and held them hostage. This brought about a wave of hostility in the USA. Not only Iranians, but also people from India, various Arab countries and Mexico were beaten up by angry Americans - anybody who looked foreign and might be one of those "terrible Iranians" that most people had barely heard of before the hostage crisis.
When Saddam Hussein, the dictator of Iraq, declared war on Iran, a common saying among Americans was "Buy Iraqi war bonds." Actually the USA played a strange double game during the Iraq-Iran war. While the administration of President Ronald Reagan gave Iraq intelligence information about Iranian troop movements and loaned millions to Iraq, the same Reagan administration also sold weapons to Iran with the help of Israel. The "special" relationship with Israel had really blossomed. The Reagan administration, by means of Israel, was able to ship weapons to Iran - a move that would have outraged many of those who voted for Reagan.