Since the wave of school reform decentralization, schools now maintain a more dynamic and diverse relationship with their environment than they did in the past. School principals' relationships with the local educational authority (LEA) are a prominent example of this change in Israel. LEAs try to gain more pedagogic influence over schools while school principals become dependent on the LEA for financial and educational resources. This study examines school principals' attitudes toward the proactive role of the LEAs in localities that have adopted the school based management (SBM) reform, in comparison with localities that have not. The sample includes 165 school principals, of which 47.6 per cent adopted the SBM reform. Based on a discriminant analysis, school principals in localities that adopted the SBM reform, reported that LEAs increased their pedagogic influence on schools in return for providing financial resources. In contrast, in localities that have not adopted the SBM reform, schools principals' reported being empowered at the local level, with the LEA perceived as advising schools. The implications of this study for school-LEA power relations are discussed based on the social exchange theory. (Contains 4 tables and 8 notes.)