The Israeli parliament has voted an ultra-nationalist party into the governing coalition.
Mr Olmert is broadening his coalition following the Lebanon war
MPs voted 61-38 to include Yisrael Beitenu, a party led by Avigdor Lieberman, who was sworn in as one of several deputy prime ministers.
Mr Lieberman also becomes the minister in charge of dealing with strategic threats against Israel.
Earlier, in a vote which correspondents described as a formality, the cabinet voted 22-1 in favour of the move.
Prime Minister Ehud Olmert had agreed to bring the party into the government, to strengthen its position ahead of a series of crucial votes.
On Sunday, Labour backed the plan, but it could still cause deep division.
Correspondents say that despite the Labour Party - the second largest party in the governing coalition - voting to support the inclusion of Yisrael Beitenu, the decision could lead to the resignation of some Labour ministers and members of parliament.
One, Labour Culture Minister Ophir Pines-Paz, dissented.
He has argued that going into coalition with Yisrael Beitenu was a "violation" of his party's commitment to its electorate, because of some of Mr Lieberman's views.
Israeli Arabs have also condemned the plan. Yisrael Beitenu advocates the transfer of some Arab towns out of the state of Israel.
Mr Lieberman has also accused some Israeli Arabs of treason for speaking to the Palestinian militant group, Hamas.
For the Israeli government, the inclusion of Yisrael Beitenu in the governing coalition is a significant move to the right less than seven months after the general election seemed to strengthen the centre of Israeli politics.
Correspondents say that Mr Olmert has decided he needs to broaden his coalition and ensure his political survival in the wake of what is widely seen as a debacle in Lebanon.