Prime Minister Ehud Olmert may create a ministry for strategic affairs for Avigdor Lieberman, leader of the right-wing Yisrael Beiteinu party, if he joins the coalition.

Lieberman recently told Olmert that he is willing to make do with control of a single ministry should his party join the government. Sources close to Olmert said the chances of that happening were greater than 50 percent, although it is not yet a done deal.

Lieberman has previously said he wants either the defense or the public security ministry, so the new portfolio would satisfy his desire for something security-related.

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Olmert and Lieberman are scheduled to meet again at the end of next week, after Olmert's return from Russia.

The proposed coalition deal is arousing anger among Lieberman's party, since Yisrael Beiteinu's 12 Knesset seats would usually entitle it to three or four ministries.

The deal also faces two other hurdles. First, Lieberman's bill to change Israel's system of government from a parliamentary to a presidential one still lacks a Knesset majority, and Lieberman has made this a condition of his entry into the government.

Second, while some Labor MKs support Lieberman's entry, others, headed by Labor chairman Amir Peretz, are vehemently opposed. Yisrael Beiteinu calls for Israel to transfer Arab areas of Israel to the Palestinian Authority and revoke the Israeli citizenship of the Arabs living there.

Should Labor unite behind opposition to the party's entry into the government and threaten to quit, Olmert would be facing a religious-rightist coalition (Shas and Yisrael Beiteinu) - something he would prefer to avoid.

MK Nadia Hilu (Labor) said talk of Lieberman's joining the coalition is "a slap to Israel's Arabs and to democracy."

"Lieberman is a threat to Arab citizens," she said. "I want Olmert to explain to me how his declaration promising equality to all can be reconciled with putting Lieberman in the government."

The cost of Lieberman's joining the cabinet as minister for strategic threats would be between NIS 6 million and NIS 10 million. His appointment would require setting up a new ministry within the Prime Minister's Office and hiring consultants and allocating budgets, in addition to salaries for the minister and his staff.

On Thursday, Olmert met with Labor MKs Raleb Majadele and Ephraim Sneh, who both oppose Lieberman's entry, in an effort to change their minds. Later, he also met MK Meir Porush (United Torah Judaism) to discuss the possibility of the ultra-Orthodox party joining the coalition.

In his meetings with Sneh and Majadele, Olmert reiterated the arguments he had made to Peretz earlier. First, he said, rebellions against coalition discipline by some Labor MKs made expanding the coalition imperative. And second, the government would neither change its guidelines nor take away any of Labor's portfolios, leaving Labor with no reason to object.

Peretz, however, was unconvinced, and he intends to convene Labor's faction on Sunday to discuss the issue.