Israel's parliament delayed a crucial Budget vote yesterday to allow time for last-ditch negotiations to avert a government collapse over funding for Jewish settlements.
The center-left Labour party threatened to vote against next year's state spending plan and leave right-wing Prime Minister Ariel Sharon's broad coalition government over its provisions for settlements in the occupied West Bank and Gaza Strip.
"This gives new hope for a solution so the national unity government will continue to function," coalition chairman Zeev Boim of Sharon's Likud party told Israel Radio after the vote was put off by four hours.
If Labour pulls out, Sharon would face the prospect of early elections and building a narrow right-wing government in the interim, with no end in sight to a two-year-old Palestinian uprising against Israeli occupation.
In fresh violence, a Palestinian gunman infiltrated a Jewish settlement in the northern West Bank late on Tuesday and killed two girls and a woman before being shot dead by soldiers.
The Al Aqsa Martyrs Brigades, which is linked to Palestinian President Yasser Arafat's Fatah faction, claimed responsibility in a telephone call for the attack in Hermesh settlement.
The attack underscored the gamble behind Labour's threat to leave at a time when it faces waning support among voters.
Opinion polls show a majority of Israelis still want a "national unity" government to combat the uprising, the possible repercussions of a mooted US strike on Iraq and a worsening domestic recession.
Israel's crisis could also upset the US goal of reducing Middle East violence to court Arab support for its campaign to disarm Iraq.
But Defense Minister Binyamin Ben-Eliezer, the Labour chief who had demanded that some 700 million shekels (US$145 million) budgeted for settlers be redirected to Israel's poor, hinted at a possible compromise yesterday.
Lawyers for Labour and Likud said a proposed compromise would put off a final resolution of the settlement funding row for two weeks in return for Labour's support of the Budget in its first reading yesterday.
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