France's top constitutional body has ruled that a youth employment law which has sparked weeks of protest is legal.
Students have continued protests by blocking roads and railway lines
The Constitutional Council move clears the way for the bill to be signed into law by President Jacques Chirac.
His prime minister has championed the law - aimed at tackling high levels of youth unemployment.
Mr Chirac will be making one of the trickiest decision of his long political career, says the BBC's Caroline Wyatt in Paris.
VIEWS ON THE STREETS
Opponents and supporters of the CPE air their views
Mr Chirac is loath to lose Dominique de Villepin as Prime Minister - he remains his political son and chosen heir for the presidency, our correspondent says.
The president is due to make a televised address to the nation on Friday.
Fresh strike bid
Universities across the country have been disrupted for weeks by protests over the First Employment Contract (CPE), which would make it easier for employers to fire workers under 26.
Mr Chirac can either put into effect the law, withdraw it, or seek a negotiated solution to the controversial proposal.
Established in 1958
Led by former MP Pierre Mazeaud
Nine other appointed members serve nine years
Rules on constitutionality of laws and interpretation of constitution
Decides legality of elections
Decisions binding, no appeals
Council is not a Supreme Court
Students, unions and left-wing political parties have staged a three-week campaign of strikes and demonstrations against the CPE, which attracted more than one million protesters on Tuesday.
Students and trade unions have called for another one-day strike next Tuesday to try to get the law scrapped.
Groups of up to 100 students continued small-scale demonstrations around the country on Thursday. Some occupied the tracks at Marseille and Rennes railway stations, stopping trains, while others blocked roads, causing traffic queues.
Mr de Villepin has refused to back down, saying the law would create much-needed jobs for youngsters.
More than 20% of French 18- to 25-year-olds are unemployed - more than twice the national average.
Mr de Villepin remains the man at the centre of this storm - determined to ride it out, but caught between forces that are proving impossible to control, says our Paris correspondent.
FRENCH STUDENT PROTESTS
2005: Conservative education minister withdraws key elements of school reform after pupils and teachers protest
1995: Protests over pension reforms push conservative PM Alain Juppe from office two years later
1994: Conservative PM Edouard Balladur abandons law cutting wages for young people in job training in face of month of protests
1986: Conservative government shelves plan to implement university reform in face of mass protest
May 1968: Uprisings help undermine legitimacy of President Charles de Gaulle, who stands down following year
On one side is the anger on the streets and the fear that this violence will set the suburbs alight again, she says.
But pushing him the other way, she says, is his desire to be the strong man who reformed France - where all his predecessors failed.
Protesters are bitterly opposed to the CPE, which allows employers to end job contracts for workers under 26 at any time during a two-year trial period.
Mr de Villepin has said he is open to talks on employment and possible changes to the contracts, but has not said he will withdraw them.
The government says the law will encourage employers to hire young people, but students fear it will erode job stability.