Sharon soldiers on despite crisis

Ariel Sharon (centre) needs new coalition partners

The Israeli Prime Minister, Ariel Sharon, has said he will remain in power despite a revolt by Labor Party ministers which brought down his national unity government.

"We will continue to lead the country in a responsible and clear-headed way," Mr Sharon told parliament - suggesting that he will try to forge a new coalition rather than call early elections.

Despite Labor's revolt, Mr Sharon secured parliament's initial approval of the 2003 budget by 67 votes to 45, with the help of small right-wing parties outside the ruling coalition.

The budget still needs approval in two more votes by the end of the year to become law.

The BBC's James Reynolds in Jerusalem says it appears that Mr Sharon will try to govern with a narrower alliance of ultra-nationalist and religious parties.

Funding for settlements

Defence Minister Binyamin Ben-Eliezer - the Labor Party leader - and Foreign Minister Shimon Peres resigned on Wednesday amid a bitter row over funding for Jewish settlements.

It appears that the Israeli political class is distancing itself more and more from the quest for peace

Saeb Erekat
Chief Palestinian negotiator

Mr Peres said all of his Labor colleagues in the government were tendering their resignations, which would take effect after 48 hours.

Mr Ben-Eliezer wanted Mr Sharon to channel $150m allocated for the settlements into social spending and job creation.

Mr Sharon, a long-standing supporter of the settlers, resisted. He had warned that he would sack any minister who voted against his budget.

Wooing far right

After the Labor walk-out Mr Sharon and his aides began negotiations with the ultra-nationalist Yisrael Beitenu party, which has seven seats in the Knesset, Israeli media reported.

Ben-Eliezer wants more spending on jobs and social services

Correspondents say a coalition with the far-right parties - which favour tougher policies towards the Palestinians - would complicate US efforts to revive the stalled peace process.

The future of the 145 settlements lies at the heart of the Israeli-Palestinian conflict - and leaves Israel deeply divided.

The United States refused to comment on Israel's political crisis.

But Palestinian chief negotiator Saeb Erekat voiced anxiety about a narrower coalition emerging between Mr Sharon's Likud and the far right.

"It appears that the Israeli political class is distancing itself more and more from the quest for peace," he said.

Instability

A narrow right-wing government could prove unstable and unpopular, and Mr Sharon may have no choice but to call an election within 90 days.

We did this in the name of preserving the nation

Binyamin Ben-Eliezer

That would delay any efforts to find a new path to peace with the Palestinians.

And after an early election there could well be a prolonged period of political bargaining before a new government is formed.

A poll published in Israel's Yediot Ahronot newspaper says that if an election was held now, Labor would slide from 26 seats to 21 seats and Likud would rise from 19 to 29.

The Labor Party joined forces with Likud in response to the Palestinian uprising, or intifada, which started two years ago.

Likud members accused Mr Ben-Eliezer of sacrificing the government for his political career, as he faces a challenge from two more dovish candidates for the Labor leadership in a primary on 19 November.