The Shas party, strong enough to bring Ehud Barak's coalition government down, demanded that its deputy education minister be given responsibility for its schools, in which 16,000 children learn.
Sarid refused because huge debts have been run up in the Shas education system which is independent but publicly funded.
Under mounting political pressure to save the government for the sake of Arab-Israeli peace efforts, Sarid opted to quit the ministry. Mr Barak has temporarily taken over the ministry.
During his year in office, the left-wing Sarid won admiration from many political opponents for his work to improve education in slum towns, which are strongholds of Shas and the right-wing Likud party.
Arye Maymon, education director in depressed Yeruham, commended Sarid for changing funding priorities, allocating resources for professional rather than political reasons, and working with grass-roots educators.
Educators who back democracy, peace and Jewish-Arab coexistence said the atmosphere had beome more positive since Sarid replaced the right-wing, pro-settler Yitzhak Levy at education a year ago. Similarly Riad Kabha, an Arab educator, noted improvements in the Arab sector, in which 20 per cent of Israeli children are educated.
Sarid had increased funding for school building and extended hours, especially in special education, said Riad Kabha. The former minister had also included Arabs - in many cases for the first time - on educational committees and in the ministry's pedagogical secretariat. He had also ordered regional directors to establish all-Arab committees in order to select candidates for Arab-sector jobs.
But Dr Mahmoud Massalha, headteacher of the Dabburiya high school in northern Israel, said: "The Israeli security services still have too much power over Arab appointments. Regionally, Arab education is still run by Jewish directors; and insufficient attention is paid to Arab curricular needs.
"We want to teach Islam properly, as a religion that respects others, so children won't come under influences." However, he said: "There's no education inspector for Islamic religion because there is so much fear."