Israel's cabinet has approved plans for an inquiry into the recent conflict with Lebanese guerrillas Hezbollah.
Ehud Olmert has faced mounting criticism of his handling of the war
The cabinet voted 20-2 in favour of setting up a government commission to determine whether mistakes were made during the 34-day conflict.
Prime Minister Ehud Olmert has been accused of sending Israeli troops into a war they were not prepared for.
He has rejected calls by reservists for an independent probe, but insisted the commission would have real power.
The commission, to be headed by a retired judge, will investigate the political and military decisions taken by Israel's leaders after Hezbollah captured two soldiers in a cross-border raid in July.
The prime minister said the new commission would have the same powers as an official state commission, set up after previous conflicts.
He ruled out setting up a state commission, saying it would be too time-consuming and could distract the military from its responsibilities.
Despite Mr Olmert's assurances, sceptics quickly criticised the new commission.
Protesters rallied outside Mr Olmert's Jerusalem offices as the cabinet met, calling for the prime minister to resign along with Defence Minister Amir Peretz and the military chief of staff, Lt Gen Dan Halutz.
Placards described the commission as a "whitewash", the Associated Press reported.
Hezbollah fired thousands of rockets despite Israel's offensive
While Mr Olmert's role in sending the military to war is under most scrutiny, Mr Peretz and Gen Halutz have also been heavily criticised.
On Friday Gen Halutz's predecessor, Moshe Yaalon, said all three men should quit, calling the decision to go to war "scandalous".
A group of 25 reservist generals have called on Gen Halutz to resign.
There have been regular protests against the conduct of the war by ordinary Israelis, most of whom are required to serve in the military at some point.