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Kadima, Labor agree to form new government

Israel's two main political parties, Kadima and Labor, have agreed to form a power-sharing government committed to further withdrawals from the occupied territories and reviving Israel's welfare state.

The Labor leader, Amir Peretz, said he had decided to join the administration, and will back the acting prime minister, Ehud Olmert, to remain in his position "out of national responsibility."

In the coming days, the Israeli president, Moshe Katsav, is expected to formally invite Olmert to form the next government. He then has up to 42 days to reach a coalition agreement with other parties to install a new administration.

Olmert said he was prepared to invite any party into his government that backs his "consolidation plan" to draw Israel's final borders by 2010 using the West Bank barrier to mark out the frontier.

It requires the dismantling of some smaller Jewish settlements, removing tens of thousands of Israelis living in the occupied territories, while annexing to Israel the larger settlement blocks that are home to about 350,000 people.

The two leaders did not comment on the distribution of Cabinet posts but Olmert told members of his Kadima party that a condition for Labor joining the administration was that it controls either the finance or defense ministry.

Israeli newspapers reported that Peretz would prefer finance but would consider becoming defense minister, provided Labor also had influence over budget priorities and that new social legislation was introduced to reverse the worst effects of the outgoing government's monetarist financial policies, which cut deep into social security spending.

"The state of Israel is facing very important challenges, and I am certain that the new government will really create a state which is nice to live in," Peretz said.

Kadima won 29 seats in the 120-seat parliament. Labor won 19. The two parties must now decide which of the smaller parties they wish to bring into government in order to ensure a stable majority in the Israeli parliament.

Olmert favored including the far-right Yisrael Beiteinu party, which advocates redrawing Israel's borders to place Arab-Israeli towns inside a Palestinian state. But Peretz has vetoed the inclusion of a party that he has described as racist.

There are a number of other potential partners, including the newly successful Pensioners party and two ultra-orthodox religious parties.

But the once powerful Likud party, which was forced into fifth place in the election, seems likely to be left out of the government.

The Likud leader, Benjamin Netanyahu, said he could not accept unilaterally giving up control of territory while Hamas runs the Palestinian government, and in the absence of a peace agreement.
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