Rebel members of Israel's governing Likud party have agreed a compromise deal which will allow approval of the 2005 state budget.
Israeli soldiers and settlers are due to leave Gaza in July
The rebels are to back the budget in return for support for a referendum on government plans to withdraw from Gaza.
Both the budget and the referendum legislation should now pass their Knesset committee stages this week.
Delays in passing the budget, the deadline for which is the end of March, could have toppled the government.
Under the deal - agreed late on Monday - the rebel Likud members will vote in favour of the budget, in return for a Yes vote by Likud members of the Knesset constitution committee on the referendum bill.
Correspondents say the compromise is yet another defeat for Prime Minister Ariel Sharon at the hands of his own party.
The parliamentary law committee is to vote on the referendum bill on Wednesday, once again raising the contentious issue of a national vote on withdrawal from Gaza.
Should the law committee approve the referendum bill, it expected to be put before parliament alongside the budget on 28 March.
Gaza withdrawal is expected to be approved by the Israeli people if a national referendum is held.
Polls show a consistent majority in favour of leaving Gaza, which Israel has occupied since 1967.
Mr Sharon proposes to pull out all settlers and soldiers who protect them. Israel will maintain control of Gaza's external borders, airspace and coastline.