Ehud Olmert has been facing calls to resign as prime minister
Israeli Prime Minister Ehud Olmert has struck a last-minute deal with the Labour party to save his coalition and avert fresh elections.
Labour's leader, Defence Minister Ehud Barak, has agreed not to support an opposition bill to dissolve parliament.
In return, Mr Olmert will hold elections for a new head of his Kadima party by September, which analysts say he is likely to lose.
Mr Olmert is under investigation for alleged corruption.
He denies wrongdoing and has not been charged.
Mr Barak has recently called for his resignation, but Mr Olmert said he would not resign unless he was indicted.
The next election is scheduled for 2010, but it is highly likely that Israel will have a new prime minister come September, says the BBC's Tim Franks in Jerusalem.
Israel Radio said the Likud party was withdrawing the bill rather than risk seeing it voted down, which under parliamentary procedure would mean a delay on when it could be brought to the Knesset again.
Mr Olmert had warned Mr Barak that he would fire Labour ministers if they joined forces with Likud leader Binyamin Netanyahu to pass the bill.
Both Mr Olmert and Mr Barak trail hawkish ex-Prime Minister Benjamin Netanyahu in opinion polls.
Mr Olmert's hopes for survival now rest in large part on his lawyers, in three weeks' time, cross-examining the man who claims to have funnelled $150,000 (£76,000) to Mr Olmert in improper campaign financing.
In the meantime, as long as Israeli politics remain turbulent, so uncertainty will continue to cloud Israel's relationships with the Palestinians and the rest of the region.