The public sector strike that began Wednesday was suspended Thursday morning by one week, after overnight talks between Finance Minister Roni Bar-On and Histadrut labor federation Chairman Ofer Eini resulted in an agreement of principles on public sector wage increases.

Under the agreement of principles, the salaries of the over 700,000 public sector workers will be raised by five percent over the next three years. However, if a final settlement is not reached by next week, the Histadrut is expected to renew the strike.

Bar-On said the agreement "brings total industrial quiet to the public sector. This is definitely an appropriate deal and we should be proud of it; it reduces the strike's damage and the suffering of the citizens."

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The pay raise will be given in three stages: a 1.5 percent salary increase in both January and December 2008, and another two percent raise in 2009. The total cost of this will come to some NIS four billion.

The various trade unions will decide upon the way the wages increase will be distributed. This means each union will be able to determine whether to implement a uniform pay raise or one relative to different salary levels. Problems relating to public sector workers' pensions remain unresolved.

Eini said he was satisfied with the agreement of principles and expressed the hope that the deal will be signed next week as planned. "I'm happy that we prevented the general population from being harmed," he said.

The Histadrut leader added: "When the agreement is signed, this will grant industrial quiet until 2009 as far as the public sector is concerned."

Both sides praised each other over the deal. Eini stated that Bar-On "protects his own interests but also knows how to progress." In turn, Bar-On said Eini "showed responsibility and openness on the way to reaching the deal."

During the course of the negotiations, sources said, Eini had agreed to come down from his original demand of 10.6 percent to 6 percent, and Bar-On raised his proposal to a three percent increase and pensions for public-sector workers, excluding those who had already received an increase in 2001, such as employees at the Israel Electric Corporation.

On Wednesday, Eini met with Eli Cohen, the director of wages in the Finance Ministry. Both Eini and Cohen said that the general atmosphere of the meeting was positive, despite the fact that it ended with no resolution.

The strike encompassed, among other things, all government ministries, local authorities (including garbage collection), trains, ports and the postal authority, university administrations, employment service bureaus, and branches of the National Insurance Institute. Israel's border crossings with Egypt and Jordan will also close.

Sanctions were also felt at public hospitals. The Electricity Corporation and the bus companies did not take part in the strike.

Judge Steve Adler, president of the National Labor Court, on Wednesday ordered the state and the Histadrut to submit a report by Wednesday night on the wages paid to public sector workers and how they had eroded over the years since the last wage agreements were signed in 2001, if such erosion had taken place.

Adler also asked for a report on the number of unionized workers in the public sector, copies of existing collective wage agreements and an account of daily financial losses caused by the general strike both directly and indirectly. The account was to include projected losses caused by the threatened strike at Ben-Gurion Airport, slated to begin Thursday morning, which had caused a frenzy among prospective travelers.

The court rejected petitions early Wednesday morning seeking to prevent the strike from coming into effect. The court rejected the appeals after considering them throughout the night, issuing a statement that the state is obligated to negotiate with the Histadrut and the unions.

The various bodies that petitioned the court said they did not dispute the basic right of public-sector workers to strike, but argued that "the right to strike was relative" and that "heavy damage and indescribable suffering would be caused the public, which is not a side to the dispute."

As a means of pressuring the striking workers, Cohen announced Wednesday morning that the state would deduct pay for work days missed due to the strike. Workers participating in partial sanctions will also face deductions.

Before the strike was launched, Bar-On offered Eini a two-stage increase to public-sector wages, amounting to a 1 percent addition by 2009. The treasury had previously been willing to offer only a 0.2 percent increase. Eli Cohen, the treasury's head of wages, later upped the offer to 0.4 percent, plus local corrections to certain worker groups.

Eini refused, saying the proposal was "like offering to buy each worker two falafels."

Bar-On said that complying with the Histadrut's demands for an increase of over 10 percent would exceed the budget, thereby impeding growth and creating unemployment. "Agreeing would compromise the government's ability to reach its objectives and combat poverty. It would keep it from helping the less affluent social strata."