Sharon retains defence minister

" The position of minister of defence... will be given to Reserve General Shaul Mofaz "
Ariel Sharon's office

Mr Sharon's office denied press reports that the defence portfolio might be offered to the Labour Party as part of a possible coalition deal.

Mr Sharon's party is now negotiating with the secular centre-right Shinui Party - which finished third in the election - on forming a coalition.

During the campaign Mr Sharon said Mr Mofaz - a staunch nationalist - would remain in office if Likud won the election.

Shaul Mofaz became defence minister in November after completing a four-year period as the Israeli army's chief of staff.

Coalition talks

Mr Sharon and Shinui leader Tommy Lapid have discussed the possibility of establishing a government without left-wing, and the extreme right-wing, parliamentary support.

Mr Lapid said his party would serve in the government together with ultra-Orthodox party Shas - but did not rule out the possibility of including another such party, United Torah Judaism, in the coalition.

Mr Lapid opposes state subsidies and military service exemptions for Israel's ultra-Orthodox Jews.

Likud's main rival, the centre-left Labour Party, suffered its worst election defeat, with its representation in parliament cut from 25 seats to 19.

Mr Sharon has made clear he favours a coalition with Labour to a narrow one with right-wing and religious parties.

Labour leader Amram Mitzna has so far refused to join Likud in a national unity government.

But there has been speculation that Labour could split over the issue of participation.

Official results have confirmed that Likud doubled its seats in parliament to 38, one better than in earlier tallies.