Israel's foreign minister has called on Prime Minister Ehud Olmert to resign after being heavily criticised for his handling of last year's war in Lebanon.
Tzipi Livni said she would not resign or try to oust Mr Olmert, but would stand as a candidate to replace him.
Their Kadima party should stay in government, she said, adding that Israel should not hold a snap election.
A spokesman said Mr Olmert would not resign, but would "fix mistakes" highlighted by a damning report.
The report, which followed a six-month investigation led by retired judge Eliahu Winograd, accused the prime minister of "serious failure in exercising judgement, responsibility and prudence" during the 34-day conflict with Hezbollah.
Speaking at a news conference following talks with Mr Olmert, Ms Livni said she had told him that resignation "would be the right thing for him to do".
Shortly afterwards Kadima coalition chairman Avigdor Yitzhaki - who openly called on Mr Olmert to quit earlier in the day - resigned from the government to express his opposition to the prime minister.
A series of polls published on Wednesday suggested a majority of Israelis wanted Mr Olmert to stand down.
Ms Livni said the relationship between a prime minister and foreign minister was "critical", adding that the pair did not co-operate effectively during last year's conflict.
"It's not a personal matter between me and the prime minister - this issue is more important than both of us," Ms Livni said.
"However, large-scale change is needed now."
Ms Livni, who was a founder member of Kadima when it was formed by former Prime Minister Ariel Sharon, also serves as deputy prime minister.
Reports in the Israeli media before the pair met had suggested Ms Livni could leave the government in an effort to unseat Mr Olmert, but she told reporters she would not do so.
Nevertheless, her statement will be a devastating blow for Mr Olmert, whose position becomes more untenable by the hour, says the BBC's Jo Floto in Jerusalem.
Earlier, Mr Olmert chaired a special cabinet meeting at which he accepted the weight of the report's criticisms but insisted the time was not right for him to resign.
"To all those who are in haste in order to take advantage of the report for political profit, I tell them not to be hasty," Mr Olmert warned.
Thousands of people are expected to gather in Tel Aviv on Thursday to protest against the government in the wake of the Winograd verdict.
The report also accused Defence Minister Amir Peretz and then chief of staff General Dan Halutz of serious failures, but stopped short of calling for any resignations.
Its findings won praise in unexpected quarters, with Hezbollah leader Sheikh Hassan Nasrallah telling crowds in Beirut that the Winograd report deserved "respect".
"It is worth every respect when an inquiry commission... is appointed by Olmert... and it condemns Olmert," he said.