Israel launches talks to form new government

JERUSALEM - Israel will take its first step today towards forming a new government after elections last week but likely prime minister Ehud Olmert faces obstacles in putting together a stable administration.

Most party leaders are expected to back Olmert, the head of the centrist Kadima party, as prime minister in talks with Israeli President Moshe Katsav due to start at noon (9am NZT).

Olmert is expected to be named in the job by mid-April and will then have 42 days to form a government.

Despite winning a general election on March 28 Kadima won only 29 seats in the 120-member parliament and Interim Prime Minister Olmert must forge a coalition with several parties to secure a majority behind a planned West Bank pullout.

The plan would uproot tens of thousands of settlers, far more than the 8,500 evacuated from Gaza last year, and trace a border along a barrier Israel is building in the West Bank, where 240,000 Israelis live among 2.4 million Palestinians.

The leading candidates to join Olmert's government are the centre-left Labour Party with 20 seats, the new Pensioners Party with seven, and two ultra-Orthodox Jewish factions, Shas, with 12 and Torah Judaism with 6 seats.

Most can be counted on to support a West Bank withdrawal, but a brewing dispute with Labour over key cabinet posts could force Olmert to seek support from the rightist Likud or Yisrael Beitenu parties, who could seek to stymie his pullback plan.

Olmert, who assumed power from Ariel Sharon when he was incapacitated by a stroke in January, says he wants to set Israel's borders unilaterally in the absence of peace talks stalled since 2000.

Palestinians say the blueprint would keep thousands of settlers in the West Bank, annex land to Israel and deny them a viable state in the land Israel captured in a 1967 war.

In talks over the new government, Labour has set its sights on the job of finance minister for party leader Amir Peretz, a former trade unionist.

Labour's secretary-general Eitan Cabel said the party wants the post "so we can carry out our promises" to fight problems such as growing poverty. Labour's platform calls for raising the minimum wage and increasing welfare spending.

Olmert has insisted that Kadima keep the post to enable it to pursue its free market policies.

Haim Ramon, a close Olmert associate, told Israel's Channel 2 television on Saturday Kadima would not give up the treasury job "because that would be tantamount to giving up half our mandate".

Israeli media said Peretz refused to meet with Olmert over the issue, and that Kadima may offer Labour the prestigious defence post to defuse the crisis.

- REUTERS