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Just to clarify some points and add some thought...
What's happening is a power play by Secular Israeli's who view themselves as Israeli first. They think that the Religious minority are infringing on their rights, and hope to win over all the Israelis who feel inconvenienced by certain civil laws.

If Israel isn't a Jewish State, then I'm not sure what argument will be left for it's existance.

Why Sharon, a Religious Jew has adopted those kind of divisive politics is still curious. If re-elected Israel will return to the 1967 borders, at his doing, but as I like to point out, there was a lot of padding, and no mans land to those borders. Gaza was empty. You didn't have millions of people right at the border line itself. 1967 borders are a misnomer. Oh, but wait, the Kadima party wants to keep East Jerusalem. So that will be called a land grab.

Israel's highest court ruled that all settlements were illegal. So the argument now becomes, what exactly do we call a Settlement. If you apply the same ruling and definition then Tel Aviv could be called a settlement.