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Max Planck Encyclopedia of Comparative Constitutional Law [MPECCoL]

Mizrahi Bank Case (Isr)

Israel [il]

Suzie Navot

From: Oxford Constitutions (http://oxcon.ouplaw.com). (c) Oxford University Press, 2022. All Rights Reserved.date: 30 June 2022

Subject(s):
Supremacy — Form and substance of constitution — Legitimacy — Rule of law — Unwritten constitutions — Judicial review — Preliminary procedures of constitutional courts/supreme courts — Judicial power

General Editors: Rainer Grote, Frauke Lachenmann, Rüdiger Wolfrum.
Managing Editor: Ana Harvey

A. Introduction

Israel has no single official document known as ‘the Constitution’, and for nearly half a century, its legal structure was based on the principle of parliamentary sovereignty. In fact though, since the 1990s, Israel may be considered a constitutional democracy. The supreme norms are expressed in its basic laws; the powers of the legislature are limited and laws are subject to judicial review. This situation is the result of the enactment of two basic laws dealing with human rights in 1992 and of a judicial decision of monumental significance in 1995, the Mizrahi Bank ruling which marked the climax of what became known as the ‘constitutional revolution’. In this decision, the Supreme Court of Israel (Beit HaMishpat HaElyon) declared the supremacy of the basic laws and, following the Marbury v Madison Case (US) legacy, recognized its power to judicially review laws.

B. Historical Background

The State of Israel was officially established and proclaimed in May 1948. The land which became Israel was conquered by British troops in 1917, and later granted to England in 1922 by the League of Nations as a mandated territory. The Holocaust of the mid-20th century expedited the implementation of the decision to grant the Jews a national homeland, as recommended by the British Government in the Balfour Declaration of 1917. UNGA Resolution 181 (II) ‘Future Government of Palestine’ of 29 November 1947 prescribed the establishment of a Jewish State as well as the adoption of a democratic constitution. Following this UN Resolution and the British Parliament’s decision that the Crown rule of Palestine would end on 15 May 1948, the leaders of the Jewish organizations, known as the National Council, declared the establishment of the State of Israel on 14 May 1948, publishing a document that later became known as the Declaration of Independence.

The Declaration of Independence stated that Israel would elect a constituent assembly which would draft a constitution for the State of Israel that would guide the establishment and activities of the elected authorities. After its election, the constituent assembly (which renamed itself the First Knesset) never fulfilled its mandate and never truly used its pouvoir constituant. Its discussions regarding a constitution ended in deadlock. The First Knesset reached a compromise—known as the Harari Resolution—that is unique and unusual in terms of comparative constitutional law. Israel would enact a constitution ‘in stages’; the constitution would be composed of chapters, each of which would stand as an independent basic law; each chapter would be endorsed by the Knesset; and after this, the chapters would form the Israeli constitution.

Following this Resolution, the First Knesset eventually dispersed, transferring its powers to the next and all subsequent Knessets. In theory, this meant that the question of whether Israel’s pouvoir constituant with its powers expired, ceased to exist, remained unsolved. Israel, therefore, started out without a constitution or a bill of human rights, based on the British tradition of the sovereignty of parliament. In the early years of the state, the prevailing concept was that the Knesset was legislatively sovereign and ‘omnipotent’, and that the Supreme Court was not competent to review its legislative acts.

C. The Basic Laws

Between the establishment of the state and the early 1990s, the Knesset completed the enactment of almost all of the institutional basic laws of Israel. Basic laws creating sovereign authorities such as the Knesset, the government, and the judiciary joined other basic laws concerning the president, the army, and the state comptroller.

The Harari Resolution did not clarify the status of the basic laws before they were consolidated in a single document. Basic laws enacted before 1992 included some provisions dealing with procedural entrenchment, that is, a special amendment procedure, requiring a specified majority of members of the Knesset (MKs) to amend them (entrenched clauses). However, they did not impose any substantive entrenchment provisions on later Knessets.

Although the status of basic laws has been discussed extensively in academic circles over the years, the Supreme Court’s rulings regarding the institutional basic laws indicated that the mere fact that a law was enacted as a basic law did not grant it any special status. An unexpected development came in the form of a Supreme Court ruling on one of the entrenched sections. Section 4 of the Basic Law: The Knesset reads: ‘The Knesset shall be elected by general, nationwide, direct, equal, secret, and proportional elections …; this section shall not be amended, save by a majority of the members of the Knesset.’ In 1969, the Knesset enacted a law allowing parties to draw on public funds to finance their campaigns, depriving new parties of any funding under the law. The law was passed by a regular majority. The petitioner, Dr Bergman, questioned the compliance of the new law with the entrenchment provision, according to which the Knesset is to be elected in equal elections, arguing that the Party Financing Law violated the principle of equality in the election’s process. The Supreme Court decided to avoid the questions as to whether the Court was empowered to judicially review a law and the justiciability of the Knesset’s compliance with self-imposed limitations, and went on to discuss whether the Party Financing Law substantially violated the principle of equal opportunity for the parties to be elected. President of the Supreme Court Landau ruled the law to be invalid because it was not adopted by the requisite special majority of 61 MKs. The 1969 Bergman decision, a notably slim judgment of just a few pages, took the Israeli legal community by surprise. In many ways, it overturned the prevailing rule that the Court does not have the power to judicially review laws. Bergman was the first instance of a law being passed by the Knesset that was later invalidated by the Court. Yet, perhaps the most surprising aspect of the ruling was the fact that the Court chose not to address the most important questions in the case, ie the status of the basic laws and its powers of judicial review.

Although until the early 1990s the Knesset passed several basic laws, it failed to introduce a basic law that would anchor a bill of human rights. Clearly, in the absence of such a formal charter, the Supreme Court’s ability to protect human rights was limited, due to its inability to invalidate primary legislation that infringed human rights. Although several draft proposals for a basic law on human rights were submitted, none of them successfully traversed all the legislative stages. The reasons for this varied, but the most prominent of these reasons derived from the perennial dispute over the Jewish nature of the State of Israel, which invariably came to the fore in discussions concerning equality, and freedom of conscience and religion or belief.

In the early 1990s, then Justice Minister Dan Meridor presented the government with a draft proposal for the Basic Law: Human Rights. MK Amnon Rubinstein (a leading professor of constitutional law in Israel) endorsed the Justice Minister’s proposal and tabled a draft proposal known as Basic Law: Human and Citizen Rights, that included both ‘formal’ entrenchment (providing that a basic law could only be amended by a special majority) and ‘substantive’ entrenchment (restricting the Knesset’s ability to infringe rights protected in a basic law).

10 Aware of just how difficult it would be to introduce such a bill in this original format, MK Rubinstein sought to promote the vote on that basic law in a manner that would circumvent the minefields that had destroyed its precursors. Accordingly, he selected several less controversial rights from the original proposal and submitted them for a preliminary reading as separate basic laws, namely Basic Law: Freedom of Occupation, and Basic Law: Human Dignity and Liberty. Both bills passed all the legislative stages. The deep constitutional consequences that these new basic laws created were never really discussed and there is no evidence of any extensive public debate or real understanding of that truly historical moment.

11 Employing an approach that has later become known as ‘atomization’ or ‘division into components’, the authors of the bill decided to promote a ‘compromise’, whereby the framework for human rights would also be enacted in stages, much like the constitution itself. In the first stage, they chose to anchor rights that had achieved consensus, and to defer the completion of the chapter on human rights to a later stage. This meant that disputed rights, such as freedom of expression, the principle of equality, and freedom of religion and conscience, were not included in the basic laws. A key factor which eventually led to the religious parties’ consent to the enactment of the basic laws was that these laws also offered to anchor the Jewish nature of the state. The text of the two proposed basic laws on human rights opens with the dual characterization of the State of Israel as ‘Jewish and democratic’, which the religious parties viewed as an achievement.

12 Thus, in March 1992, the Knesset adopted these two basic laws, whose normative status should not have been different from other basic laws. The Supreme Court had already ruled that when a regular law and an ‘un-entrenched’ basic law were in conflict, the basic law would not take precedence per se. Thus, and on the face of it, the principle of parliamentary sovereignty remained intact and in force.

13 However, both basic laws on human rights adopted a so-called ‘limitation clause’, similar to that included in the Canadian Charter of Rights and Freedoms, Constitution Act, 1982: 17 April 1982 (Canada). According to this clause, a ‘regular’ law that ‘violates’ a human right expressed in the basic law is valid only if it satisfies the cumulative conditions of the limitation clause, namely: ‘There shall be no infringement of rights under this Basic Law except by a law befitting the values of the State of Israel, enacted for a proper purpose, and to an extent no greater than is required.’

14 This clause introduced an innovation in Israeli legislation by establishing a ‘substantive entrenchment’ or ‘substantive limitation’, rather than just a formal ‘majority’ entrenchment, of the Knesset’s power to enact a law that contradicts a basic law. Therefore, a restriction of the human rights protected by the basic laws may only be imposed for worthy purposes and only if it satisfies the principle of proportionality. The real meaning of this provision, however, still remained to be seen.

15 Both basic laws provided the requisite normative framework for instituting judicial review of Knesset legislation and brought the discourse of pouvoir constituant back to the heart of the legal arena. The Supreme Court’s willingness to add the missing link of judicial review and to confer upon it its full constitutional weight was a natural and perhaps even necessary development of the Court’s jurisprudence—a development that remains controversial to this day. This entire development, which culminated in the Mizrahi Bank ruling, became known as ‘the constitutional revolution’.

D. The Mizrahi Bank Case

1. The Facts

16 The question presented to the Supreme Court in the Mizrahi Bank case concerned the validity of a law enacted after the introduction of the basic laws of 1992. In three different cases heard in district courts, the appellants challenged an amendment to a statute that was enacted in 1993. The amendment (Family Agricultural Sector (Arrangements) (Amendment) Law, 5752-1992, IL 1431 (1993) (Isr)—known as the ‘Gal Statute’ after its MK initiator) required the settlement, restructuring, and cancellation of debts of the Kibbutzim and Moshavim to private creditors, in order to save them from total bankruptcy. The appellants argued that the amendment infringed upon their property rights, protected by the Basic Law: Human Dignity and Liberty, and was inconsistent with the principles established in the limitation clause of this basic law. All three cases raised the same fundamental questions. The facts of the cases are incidental and were not the main focus of the Court’s deliberations. Of relevance was the fact that the appellants argued that a new law infringed their right to property as guaranteed by the Basic Law: Human Dignity and Liberty, and failed to meet the conditions of its limitations clause. It was the relationship between the allegedly infringing law and the basic law that raised a host of constitutional questions. This time, unlike in the Bergman case, the Court elected to deal with all of the constitutional issues raised by the case.

17 A special nine-judge panel broached the broader issue of the normative status of basic laws in Israel and the impact of the new basic laws upon the legal system. Eight of the judges believed that the Knesset had the authority to enact a constitution and that it had exercised this authority when enacting basic laws. Justice Cheshin dissented, holding that the Knesset had no such authority and that Israel lacks a formal constitution. The judgment was published in a separate volume, comprising hundreds of pages and almost 300,000 words, dedicated primarily to the status of basic laws. However, the monumental decision was barely discussed and received almost no media coverage, as it was delivered on 9 November 1995, just five days after the assassination of Prime Minister Yitzak Rabin by a Jewish student. Inevitably, the focus of the Israeli public was on the assassination for weeks to come.

18 The appeal in the Mizrahi Bank case was rejected unanimously, and the amending law was declared to be consistent with the limitation clause. As no ‘real’ judicial review was conducted, even if a limitation was imposed on the Knesset’s powers, it was not felt immediately. Therefore, most of the judgment is obiter dictum because there was no need to discuss the status of the basic laws in order to resolve the case at hand.

2. The Reasoning

19 President Aharon Barak wrote what actually became the ‘majority’ opinion. Three judges concurred with President Barak’s approach, with some differences; while three others chose not to decide upon the constitutional theory justifying judicial review. The President’s judgment focused on the pouvoir constituant of the Knesset or, in other words, its authority to endow Israel with a constitution. President Barak stated that the Knesset dons ‘two hats’, serving as both a legislature and a constituent authority. As a constituent authority, the Knesset formulates ‘basic laws’ that serve as ‘constitutional’ norms at the apex of the Kelsenian pyramid. Acting as a legislature, the Knesset formulates ‘regular’ laws that are normatively subordinate to basic laws. The Knesset’s legislative power is limited by the norms that it establishes in its constituent capacity. The scenario of a legislature that has constituent power is by no means exceptional, particularly where it concerns the authority to amend the constitution. The novelty of the Mizrahi Bank decision lies in its notion of a permanent, ongoing pouvoir constituant.

20 In ruling that the Knesset has pouvoir constituant, President Barak relied on the academic writings of Professor Claude Klein, one of Israel’s most prominent constitutionalists, who had already canvassed this topic in the 1970’s, after the Bergman case. Professor Klein wrote that the Knesset holds pouvoir constituant, arguing that the constituent authority is not bound to accept a constitution in one single document, and may enact several separate constitutional laws, meaning that the constituent authority may act for a long time—a transition period—also serving as a legislative branch.

21 President Barak suggested three alternative models, any of which could serve as a theoretical base for the ongoing pouvoir constituant of the Knesset. First, the ‘constitutional continuity model’, which a priori is a historical model based on the idea that the Knesset was assigned pouvoir constituant upon the establishment of the State of Israel, and that this power devolved to all subsequent Knessets. This model is based on Kelsen’s Grundnorm, according to which every state has a basic norm from which it derives authority regarding all legal norms in the system. President Barak states that this basic norm is the authority of the leaders of the Jewish organizations, namely the National Council which declared a new state and decided to hold elections for a constituent assembly. If the First Knesset, elected in 1949, had chosen to adopt a constitution, it would have enjoyed the power to do so. This constituent authority ‘passed’ regularly from the constituent assembly to the First Knesset and on to all the subsequent Knessets. Therefore, the Knesset today still holds pouvoir constituant following the ‘constitutional continuity’ model.

22 The second model is based on Hart’s rule of recognition, according to which the Knesset’s constituent authority derives from the public perception of the Knesset as having that authority. The rule of recognition is determined by the court, which expresses society’s views as to how norms (including constitutional norms) are created. Does Israeli law recognize the authority of the Knesset to frame a constitution for Israel? Responding affirmatively, President Barak relied on an evaluation of facts and an appreciation of societal views drawn from extensive citations of statements by Knesset members over the years.

23 The third model for determining the Knesset’s constituent authority is an empirical model based on the writings of Ronald Dworkin. This model attempts to identify the best and most coherent explanation for the entire legal and social history of a given system at a particular point in time. President Barak referred to the Knesset debates to prove that they were aware of the Knesset constituent authority when enacting basic laws.

24 Barak based his approach on these three alternative models, to enhance the conclusion that Israel has a constitution. Although he relied on the US Marbury v Madison decision to justify the power of judicial review of legislation, he also explained the legitimacy of judicial review as deriving from the rule of law and separation of powers, the objectiveness and independence of the judiciary, and from democracy. Democracy is the substantial basis for the legitimacy of judicial review. This is also the true basis of the constitutional principle itself, wrote President Barak, meaning that the power of judicial review derives from the nature of a formal constitution. From that supremacy of the basic laws derives the assertion that Israel has a constitution, and that this constitution is protected by judicial review.

25 Retired President Meir Shamgar’s conclusion was similar to President Barak’s: the Knesset had the power to limit itself and enact norms of constitutional character and status. His approach, however, was not based on the Knesset’s constituent power, but rather on recognizing its power of self-limitation. The Knesset was sovereign and as such could entrench its enactments, thereby creating both regular and constitutional legislation. Because its sovereignty is unlimited, the Knesset is also empowered to impose limitations upon its own legislative authority. He named his theory ‘the unlimited sovereignty of the Knesset’. According to Shamgar, this ‘unlimited sovereignty’ theory recognized the Court’s power of judicial review over legislation. The Court was enforcing the entrenchment that the Knesset had imposed upon itself. Shamgar relied on the British constitutional developments after Britain joined the European Union and stated that English law now recognized a provision with a superior normative status. This superiority had been granted by Parliament’s own decision, following Britain’s accession to the European Community. According to Shamgar, the unlimited sovereignty theory allows the Court’s exercise of judicial review over legislation, because the Court only enforces the entrenchment that the Knesset has imposed upon itself. Although Shamgar mentioned that there are ‘inherent’ limits on the Knesset’s power of self-limitation, these inherent limits were not elaborated upon within this reasoning and therefore remained unclear. Still, it is worth mentioning that Shamgar’s view of the Knesset’s unlimited sovereignty has not been cited in later opinions and therefore may be considered nowadays a ‘minority’ view.

26 Throughout his opinion, Justice Cheshin expressed his unequivocal dissent from the constitutional view of his colleagues. In a long, emphatic, and carefully reasoned opinion, he explained why he would not side with the majority. According to Justice Cheshin, the Knesset does not have pouvoir constituant. This power was a unique, one-time phenomenon that ended when the First Knesset dispersed. Today, the Knesset is exclusively a legislative authority, and should it choose to frame a constitution for Israel, it would have to ask the nation to grant it constituent authority. The constitution—according to Justice Cheshin—must be seen as Mount Sinai: a special monumental moment where there should be no doubt as to who the founders are or what the constitution is. This leads to the question of how, until this judicial decision, no one knew that Israel had already adopted a formal constitution? Justice Cheshin analysed the Knesset debates in order to prove that the MKs were unaware of their special constitutional status when enacting basic laws. In his view, the more suitable interpretation was that MKs treated basic laws as regular laws. Not only was the Knesset divided regarding the status of basic laws but so too were Israeli legal scholars on whether the Knesset has pouvoir constituant. Still, it would seem that the thrust of Cheshin’s critique lay in what he viewed as an attempt to frame a constitution by way of case law. As he put it: ‘Yet, with all my might I will oppose our recognition of the Knesset’s authority to enact a constitution by force of a judicial ruling via a legal analysis of a document dating back 47 years, while relying on disputed concepts that have no firm roots in Israeli society. And where are the people? Should we not ask their opinion?’

27 Notwithstanding Justice Cheshin’s opposition to the constitutional status of basic laws, he agreed that the Knesset was empowered to impose different kinds of limitations on its legislative power. Justice Cheshin agreed that the Court may hold the power of judicial review even without a formal constitution. The Court may exercise judicial review to enforce ‘manner and form’ restrictions that the Knesset has imposed upon itself.

28 The process orchestrated by the majority ruling in Mizrahi Bank was primarily based on foundations already established by the Knesset. It is doubtful whether the Mizrahi Bank judgment could have been written had the Knesset not first enacted two basic laws that included a limitations clause. The Supreme Court, however, went a few steps further. In ruling that the Knesset has constituent authority and that it exercises that authority whenever it enacts a basic law, it recognized the supreme constitutional status of all basic laws, which at once became Israel’s Constitution. The Court’s endorsement of judicial review is based upon the American tradition that recognizes the Court’s authority for judicial review even without explicit constitutional framing. Therefore the Mizrahi Bank case may be seen as Israel’s version of the Marbury v Madison decision, where the Supreme Court of the United States recognized its authority to judicially review laws enacted by Congress despite the absence of any authorization to do so in the US Constitution.

E. Conclusion

29 Israel’s unique constitutional history is marked by the giant steps taken in the Mizrahi Bank decision: the declaration of the supremacy of the basic laws, following the ‘revival’ of pouvoir constituant; the statement that Israel has a formal constitution, comprised by the basic laws, and the recognition of the power of judicial review of legislation.

30 The Mizrahi Bank ruling stated that Israel had a ‘formal’ constitution. Since then, a law infringing fundamental rights contained in a basic law failing to meet the conditions of its limitations clause will be declared invalid by the Supreme Court, regardless of the Knesset majority that enacted it. The ruling recognized for the first time the Court’s power of judicial review of Knesset legislation, not only in the formal sense of ascertaining that it was enacted by the requisite majority, but also in the substantive sense, when a law violates the conditions prescribed by a basic law. But the Mizrahi Bank case has been severely criticized by the Knesset and in academia, both arguing that the emerging constitution is an enterprise promoted mainly by the secular Jewish majority in Israel, which is culturally and politically associated with Western culture and ideals, and does not address the aspirations of large minority groups in Israeli society. The religious parties argued that they failed to comprehend the meaning of the 1992 basic laws and resented the Supreme Court’s judicial review prerogative. The Knesset did not react to the Mizrahi Bank decision with new legislation. While the Knesset absorbed the constitutional process that some MKs believed was imposed upon it, it did not rise to the challenge with which the Court presented it. The Court chose to leave an array of unresolved constitutional questions for the legislature, but the Knesset failed to answer them. It did not complete the constitution and it failed to introduce the Basic Law: Legislation, which was supposed to establish the basic laws’ normative constitutional status and the Supreme Court’s judicial review powers. Moreover, instead of treating basic laws as Israel’s solid constitution, the Knesset seems to be increasingly inclined to amend them, sometimes for very specific purposes and with relative ease.

31 The Court, however, did not mirror the Knesset’s silence. Upon examination of 20 years of experience since the constitutional revolution, the Supreme Court’s judicial review appears to have been and to have remained quite restrained. The Knesset is aware of the Supreme Court’s ability to intervene and therefore conducts its own constitutional inspections within the legislative process. The Supreme Court has nullified some 13 laws (mainly specific sections), all following judicial rulings that these laws disproportionately impaired rights outlined in the basic laws. To give just one example, in 2009 a panel of nine judges headed by President Dorit Beinish declared (by a majority of eight judges) that the amendment to the Prisons Ordinance, which permitted the establishment of private prisons in Israel, seriously violated protected human rights (Academic Center of Law and Business v Minister of Finance HCJ 2605/05 (rendered 19 November 2009)). The Court stated that the transfer of authority for managing prisons from the state to a private contractor whose aim is monetary profit would severely violate the prisoners’ basic human rights to dignity and freedom. The Court was well aware that, so far, no American or British Court has had to rule on whether privatizing prisons is unconstitutional. This case appears to be the first case in comparative constitutional law, in which a Supreme Court has declared prison privatization to be unconstitutional.

32 Often referred to as heralding the ‘constitutional revolution’, the Mizrahi Bank judgment established not only the normative supremacy of basic laws according to the doctrine of pouvoir constituant, but also the principle of a limited legislative authority, as well as the concept of judicial review. As a result of this judgment, Israel became a constitutional democracy. In the wake of Mizrahi Bank, the currently accepted approach is that the Knesset indeed dons two hats, functioning as both a legislature and a constituent authority. Norms established by the Knesset exercising its constituent power (basic laws) have constitutional status. Norms established by the Knesset exercising its legislative power (regular laws) are subordinate to and limited by the norms established by it as the constituent authority.

33 Reflecting on the Mizrahi Bank decision after 20 years, one notes that it primarily established effective judicial review in Israel. The constitution itself contains numerous flaws. It actually resembles a selection of institutional rules of procedure, making it a ‘slim’ constitution that is not a real statement of coexistence or national credo. It lacks many characteristics that exist in constitutional states. Some of the rights are missing; certain instructions are entrenched, while others are not; some are worded in a formal language, while others are long and cumbersome; and, above all, a basic law that arranges the process of identification and enactment of basic laws is clearly missing, which is why basic laws can be introduced or amended by any Knesset majority. Israel’s constitution is unstable; it is still a constitution in the making.

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