The cabinet approved the 2007 state budget late Tuesday by an unexpected majority vote of 19 to four, with a single abstention from Labor Party Chairman and Defense Minister Amir Peretz.

Despite earlier threats by Labor ministers to torpedo the vote over the treasury's plan to delay scheduled updates to minimum wage, all of the party's ministers, with the exception of Peretz, voted in favor of the budget.

The budget was opposed only by the four ministers from Shas.

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The schism between Labor and Kadima over the terms of the 2007 state budget remained unresolved hours before the cabinet was expected to vote in favor of the treasury's proposal without the support of Labor Party ministers.

Prime Minister Ehud Olmert met with Peretz Tuesday night in a failed attempt to reach a compromise on the budget that would allow Labor ministers to support the proposal.

Labor ministers on Tuesday threatened to vote down the budget unless the treasury promised to update minimum wage by its scheduled date, as agreed upon by coalition. The ministers reconvened after Peretz's meeting with Olmert to reach a final consensus on their party's vote.

At least 15 out of 24 cabinet ministers were predicted to support the budget.

The NIS 283.1 billion budget includes NIS 47.7 billion for the defense establishment, NIS 25.7 billion for the Education Ministry, NIS 5.9 billion for higher education, NIS 15.7 billion for the Health Ministry and NIS 35.6 billion for interest payments. Budget reserves are pegged at NIS 5.7 billion.

Labor ministers decided at their party meeting Tuesday to oppose the treasury's decision to push off updates to the minimum wage. The ministers said they would do everything in their power to come forth with a full consensus in the party on the matter before the cabinet vote.

Three Labor ministers -Shalom Simhon, Benjamin Ben-Eliezer and Isaac Herzog - are likely to vote in favor of the budget despite the party's general opposition.

The assumption is that at least 10 of Kadima's 11 ministers will approve the budget, with Transportation Minister Shaul Mofaz being the only possible holdout. At least three Labor Party ministers - Shalom Simhon, Benjamin Ben-Eliezer and Isaac Herzog - are also expected to vote in favor. Their party colleagues should either abstain or vote against the budget, though a few might vote in favor. The two Pensioners' Party ministers are expected to approve the bill, while all four Shas ministers are expected to vote against it due to the cuts in welfare allowances.

Talks between treasury officials and cabinet ministers, and minor changes to the budget as a result, continued Monday and are expected to take place right up to and through the cabinet meeting on Tuesday. Most of the remaining problems concern the defense, education and social welfare budgets.

The shadow of the Lebanon war will hang over the 2007 budget, with a NIS 2 billion one-time payment to cover the costs of the war plus NIS 1.5 billion for reconstruction in the North. Despite pressure from many sides, including Bank of Israel Governor Stanley Fischer, the budget contains no new taxes.

The treasury is even planning a further cut to income and corporate taxes on January 1, 2007.

The budget contains a few important reforms, including the continued reduction in foreign workers, the introduction of competition in the electricity sectors, improvements to the municipal water supply and structural changes to the Airports Authority.