Elections for the sixth Knesset took place in the shadow of what became known as "the affair" or the "unfortunate affair" – a failed sabotage operation that Israel attempted to carry out in Egypt, by means of a network of agents recruited from among the young members of the Egyptian Jewish community. The agents were recruited by the Israeli military intelligence and were part of Unit 131 which was responsible at the time for espionage in Arab countries. Cells such as these were designed for active service on the enemy front during wartime, and were to remain dormant until then. In June 1954, Avri Elad was made responsible for operation of the network.
In the meanwhile, concerns had arisen in Israel regarding Britain's intention of withdrawing its troops from the Suez Canal. A plan was formulated by Israeli military intelligence to carry out a series of acts of sabotage in Egypt, passing the attacks off as the work of an Egyptian nationalist movement. Israel sought thus to disrupt relations between Egypt and Britain, and the West. It was decided that Avri Elad's cell would be put into operation. In July 1954, members of the cell planted a bomb at a post office in Alexandria. Later they did the same at the American libraries in Cairo and Alexandria. The attacks were meant to peak on July 23, 1954, the anniversary of the Officer's Revolution in Egypt. The plan was to plant bombs at movie theaters in Cairo and Alexandria. The attack failed because of a technical problem with one of the explosive devices.
The management and operation of the cell did not meet the standards of clandestine intelligence operations in enemy territory. Division of labor was partial, the escape routes were not prepared properly, and too many people were involved in the ongoing maintenance of the dormant cell. The capture of the perpetrators of the attacks rapidly led to the exposure of the entire cell and damage to the Israeli intelligence network in Egypt. Among those arrested was Meir (Max) Bennet who was not actually a member of the cell, though he was an Israeli intelligence operative. Bennet committed suicide in Egyptian prison in December 1954 after he had been severely tortured. The trial of the network members began that same month. Two of its senior members, Dr. Moshe Marzuk and Shmuel Azar, were sentenced to death and hanged in January 1955. Three others were sentenced to life in prison, two to seven years in prison, and Marcel Ninio was sentenced to 15 years in prison. Two were acquitted.
The details of the affair were not revealed to the Israeli public. Prime Minister Sharett appointed the Olshan-Dori commission, which consisted of Chief Justice Yitzhak Olshan and former chief of staff Yaacov Dori. The investigation focused on the question of "who gave the order" – or who was directly responsible for putting the cell into operation. Specifically, the investigation sought to determine whether Minister of Defense Pinchas Lavon had given the order. The Olshan-Dori Commission failed to determine whether this was the case.
The affair died down for several years, until 1960. Avri Elad was put on trial on suspicion of being an Egyptian double agent. Elad claimed that the Israeli army had forged documents. In the meanwhile, Pinchas Lavon demanded that Ben Gurion absolve Elad of all suspicion. Ben Gurion refused. The question of "who gave the order" remained unanswered. Colonel Benjamin Gibli, chief of military intelligence, pointed a finger at Lavon, claiming that he had given the order verbally. The affair refused to blow over and continued to cause waves in the Israeli public and security arena.
The government of Israel decided to convene the Commission of Seven, comprising seven ministers and chaired by Minister of Justice Pinchas Rosen. In December 1960 the commission declared that Lavon had not given the order. Moreover, it determined that Lavon had not even been aware of the operation in Egypt. Benjamin Gibli was forced to resign from the IDF. The possibility that documents submitted to the Olshan-Dori Commission had indeed been forged, as Avri Elad had claimed, grew increasingly plausible. It was now suspected that the Commission had received false testimonies that had prevented it from ascertaining who had given the order, i.e. who was responsible for the serious failure in Egypt.
The affair stands out as a security fiasco of the highest order. Both on the operational level in terms of poor judgment, and on the decision-making level and in determining clear chain of command, management, supervision and control. Furthermore, the affair threatened to implicate Israel on the international level and damage its relations with western countries, over and above the damage done by exposing secret Israeli belligerence on Egyptian soil.