As the former head of Mossad, Israel’s secret service, Danny Yatom is not a man easily ruffled.

Yet halfway through his second term in the Israeli parliament, where he served as a deputy for the Labour party, Mr Yatom found he could take no more. Dismayed by the latest backroom deal to preserve the life of the current government for another three months, he announced his decision to retire from politics last week. “The leadership in Israel has made political survival its only goal. Moral and ethical codes that were once fundamental have been eroded,” Mr Yatom declared.

While he placed the primary blame on Ehud Olmert, Israel’s embattled prime minister, Mr Yatom also took aim at his own party, which forms part of the governing coalition: “Olmert failed ... but he is not alone. As a Knesset member in a coalition party, I feel as though I am a partner in the deterioration when I vote in favour of the government.”

Israel’s former top spy is far from alone in voicing dismay at the state of Israeli politics. According to polls, three out of five Israelis want Mr Olmert, who is the target of an embarrassing corruption probe, to resign immediately. Despite his personal travails and his chronically weak and fractious coalition, the prime minister has shown no intention of heeding such pleas: although he has agreed to hold primaries aimed at electing a new leader of his Kadima party by September, no one is counting out Mr Olmert as he continues his gravity-defying battle to stay in office.

Unpopular governments are hardly un­usual in Israel, where prime ministers have repeatedly been hounded out of office only to be voted back into power again a few years later. But a growing number of Israelis believe that the country faces not so much another coalition collapse but something larger: a full-blown crisis in the country’s political system that is sapping the ability of political leaders to tackle crucial challenges – from reaching a peace deal with the Palestinians to facing down the threat of an increasingly hostile Iran.

The three symptoms of the country’s political malaise are easy to identify: exceedingly low levels of trust in politicians and democratic institutions, the chronic instability of Israeli governments and the fragmentation of parliament and political life in general.

Mr Olmert’s turbulent tenure is a case in point: his botched war in Lebanon two years ago and a string of corruption allegations have increased voter disillusionment; at the same time, the fragmented nature of Israeli politics forced him into an unwieldy coalition and left him exposed to constant political blackmail. The need to satisfy the narrow and often contradictory wishes of his coalition partners made it almost impossible for Mr Olmert to pursue coherent policies and deliver on promises such as reaching a peace deal with the Palestinians.

An example of the limitations placed on the prime minister is his inability to negotiate the status of Jerusalem – one of the keys to resolving the Israeli-Palestinian conflict. Shas, the biggest ultra-orthodox religious party and a member of Mr Olmert’s coalition, has warned repeatedly that it will pull out of the government if he even discusses handing back occupied East Jerusalem to the Palestinians.

One factor hindering political cohesion in the country is its electoral system, which leads to a highly fragmented parliament. Unlike the winner-takes-all of some democracies such as the UK or the significant percentage threshold required by others before a party can enter parliament, Israel has a pure system of proportional representation with only a small threshold required to enter parliament. Seats are allocated according to the percentage that a party achieves in a state-wide election and candidates are selected by party list.

Signs of voter disillusionment can be found everywhere, but a good starting point is the country’s annual Democracy Index, a survey published by the Israel Democracy Institute. The most recent study found only 17 per cent of Israelis have trust in the prime minister, while the Knesset fared little better with 29 per cent. Even the Supreme Court – hitherto seen by respondents as the body that “best safeguards Israeli democracy” – saw its rating plunge by 12 points to just 49 per cent.

Voter turnout at general elections has also fallen steadily, reaching a new low of 63 per cent two years ago. Opinion polls, meanwhile, make grim reading not just to Mr Olmert but to most of his political rivals as well – a reflection, perhaps, of the fact that nine in 10 Israelis believe the country is “tainted with corruption”, according to the same survey from the Israel Democracy Institute.

Such ratings, says Ari Shavit, a political analyst and commentator for Haaretz newspaper, mean Mr Olmert has no chance of pulling off a peace agreement. “In order to lead a nation through the risks involved in making a peace deal, we need a leader with deep moral authority. Otherwise the nation will fall apart,” he says. “There is no one who thinks that a person with Ehud Olmert’s moral authority and gravitas can make peace.”

Shlomo Avineri, a professor of political science at the Hebrew University and a former director-general of Israel’s foreign ministry, points out that the problem goes far beyond trust in Mr Olmert: “The last few years have shown that it is very difficult for the political system to come up with decisions on crucial issues,” he says.

A key reason for this widely shared view is the instability and fragmentation of Israeli politics. Since the state was founded in 1948, voters have seen governments come and go on average every two years. Somewhat ironically, this makes Mr Olmert’s teetering coalition – Israel’s 31st government, according to the official count – one of the more lasting ones.

But as the past two years have shown, even prime ministerial staying power is no guarantee of stability. As Mr Olmert’s government lurched from one crisis to the next, it took on new coalition partners, only to lose them again a year later. New ministerial portfolios were created and dissolved, while others, such as the all-important defence brief, had to be reshuffled.

The constant churn in government is mirrored in the Knesset, where parties pop up, enjoy a brief political flowering in the legislature only to wither and die at the next election. In the current Knesset, this role is performed to perfection by the Pensioners party, which won seven of the chamber’s 120 seats two years ago, and joined Mr Olmert’s coalition government. Yet with little to show for its efforts, the group has split and polls say it has no chance of being returned at the next general elections in 2010.

With other fringe parties certain to take its place, it is a fair bet that the Israeli parliament will continue being a lively place. The current chamber includes 13 parties; the largest, Mr Olmert’s Kadima, controls fewer than one-quarter of the seats. Even a combination of the three biggest parties – spanning the political left, right and centre and boasting the current prime minister and two of his predecessors – would fall one deputy short of a majority in the Knesset.

Barring a surprise, any future government will again need the support of several smaller coalition allies to form a majority. There are plenty to choose from, with the current Knesset including eight parties with less than 10 seats. Israel’s biggest minority groups – Arabs and ultra-orthodox Jews – are represented by no fewer than five parties. All of them are virtually guaranteed seats in the Knesset thanks to the country’s electoral regime.

Gideon Doron, a professor of political science at Tel Aviv University, says the system “sharpens and reinforces” the already stark divisions between Israel’s social groups because it ensures that votes for minority parties are rewarded with seats in the Knesset. It has, he argues, helped cement the influence of special interest parties that place the welfare of their constituents – such as ultra-orthodox Jews, Jewish settlers in the occupied West Bank or Israeli Arabs – above the broader national interest.

Reform of the electoral system – in particular a higher threshold for smaller parties to enter the Knesset – has been on the agenda for much of Israel’s history. But chances of a successful overhaul are seen as slim, not least because of the entrenched position of the parties that have most to fear from such a reform – in particular the ultra-orthodox groups.

Prof Avineri dismisses electoral reform as “snake-oil medicine” that has no chance of being implemented and that may end up doing more harm than good. “If you go with the British system, you will end up with a party taking 25 per cent of the vote but controlling 60-65 per cent of the Knesset. That is very problematic,” he says, pointing to the absence of cohesive political blocks in Israel.

Instead of abandoning the current voting regime, Prof Avineri argues in favour of reforming the way that parties select their candidates for the Knesset, which he believes gives too much sway to party activists. “It’s a populist beauty contest,” he says. “This is a country bursting with talent but one reason why people don’t go into politics is that they don’t want to go through the primary grind, which is demeaning and expensive. People need a lot of money. Once elected, a politician has to spend three, four, five nights a week attending bar mitzvahs or weddings – not of close friends but of people whose votes he wants.”

Ultimately, however, Prof Avineri believes the country’s dysfunctional politics mirror the disagreements and divisions that haunt Israeli society at large. After more than a decade of diplomatic setbacks, Israeli voters are torn between their desire for a peace agreement and their mistrust of both Israeli and Palestinian leaders. At the same time, Israel’s mosaic society of immigrants, secularists, ultra-orthodox Jews, settlers and Arabs is increasingly splitting along sectarian lines.

“The problem is that this is a very complex country in terms of its politics and social structure and that makes it very difficult to govern. The country is divided,” says Prof Avineri.

Prof Doron, too, is sceptical of any marked improvement in the near term. He compares Israel’s current situation with France’s tumultuous Fourth Republic, which saw more than 20 prime ministers come and go between 1946 and 1958. That period ended with the return of Charles de Gaulle and the creation of a strong presidency to guarantee political stability.

“The Fourth Republic was muddling through from one crisis to the next – just like we are doing now. Maybe we should move to a presidential system, like in France,” Prof Doron says. For such a change to happen, however, Israel would have to experience a huge crisis, like the Algerian war that put paid to France’s Fourth Republic, he adds. Anything less dramatic will not be enough: “We are no longer impressed by small crises.”