Israeli Prime Minister Ariel Sharon has agreed a national unity coalition deal with veteran opposition leader Shimon Peres - an alliance that could give a strong boost to Israel's planned withdrawal from the Gaza Strip.
A deal could give a stable cabinet for Sharon (r), and a major post for Peres
The BBC's Barbara Plett in Jerusalem looks at some of the key issues involved.
What is drawing them together now and why?
Mr Sharon needs a national unity government. He lost his majority in parliament because of opposition to his plan for unilaterally withdrawing from the occupied Gaza Strip. Bringing Labour into government will strengthen his coalition.
The Labour Party leader, Shimon Peres, wants a national unity government to make sure that the so-called disengagement plan goes ahead. This is also a chance for him to get out of opposition and back into power.
What has each got to gain, and what are the risks?
Mr Sharon stands to gain a stable government, but he risks real schisms in his Likud party.
A majority of its members oppose a unilateral withdrawal from Gaza, they say it would reward Palestinian violence. Many also oppose a national unity government with Labour, believing it would give a boost to the disengagement plan.
Mr Peres stands to gain major ministerial posts and a chance to strengthen a process of withdrawal from the occupied Palestinian lands, something he sees as vital to restarting the long dead peace process.
He risks the charge that Labour is no longer capable of forming a government without Likud.
What policy positions would a Sharon-Peres coalition be likely to share apart from the Gaza withdrawal?
Even in terms of the Gaza withdrawal, they have different views of the Palestinian Authority (PA).
Mr Sharon says there's been no partner for peace for years and none has yet emerged since the death of Yasser Arafat. Mr Sharon wants to carry out the disengagement unilaterally.
Mr Peres wants to co-ordinate disengagement with the PA and was much less hostile to Mr Arafat.
They also differ on social and economic policy. Labour opposes the neo-liberal economic reforms of Mr Sharon's finance minister Binyamin Netanyahu.
How strong is the internal opposition from their own parties?
It's strong in Likud. That's partly because cabinet ministers are afraid of losing their posts in a unity deal with Labour, but more because of opposition to the disengagement plan.
Mr Sharon could face real problems if the Likud dissidents join forces with Jewish settlers in the occupied territories.
It was such a coalition that defeated the prime minister when he tried to get his party to approve the plan.
In a worst case scenario, there could also be a national schism. Israeli politicians have warned about the possibility of political assassination and violence between Jews.
Opposition in the Labour party is much smaller and confined to its left wing.
Dissidents say Labour should support the disengagement plan from outside government while working to bring down Mr Sharon through elections. They don't believe a peace process is possible as long as Mr Sharon is prime minister.
Is Labour looking to join a unity government from a position of real strength, and can it significantly alter the direction of a Sharon-led government?
No, and probably not.
Labour has been losing at the ballot box in recent elections and hasn't been able to make a comeback.
Critics say that's because it has lost direction and isn't presenting a serious alternative to Likud, a trend which would only be strengthened by joining forces with Mr Sharon.
As to altering the direction of a Sharon-led government, that remains to be seen.
But in a Likud-Labour coalition during Mr Sharon's first term from 2001-2003, the prime minister reconquered the West Bank and effectively destroyed the PA while Labour essentially sat by and watched: it couldn't change government policy, but didn't leave the coalition in protest.
What does all this mean for the Palestinians?
Palestinians will see this as a sign that Mr Sharon is serious about disengagement.
However, they are divided about the plan. Some - like the Islamic group Hamas and the younger leadership of the mainstream Fatah movement - see it as a victory for their strategy of armed resistance.
Others see it as a trap in which Israel rids itself of the burden of Gaza, but consolidates its grip on the occupied West Bank through the expansion of Jewish settlements and the ongoing construction of its separation barrier.
Many of the Palestinian factions are opposed to a policy that systematically excludes the PA as a negotiating partner.
They will wait to see if the inclusion of Shimon Peres in Mr Sharon's coalition helps revive some sort of peace process.
But given their experience of the last national unity government, few Palestinians have much hope that Mr Peres will be able to check what they see as the prime minister's policies of conquest.