The Labor Party Central Committee is to meet Sunday to decide whether Labor should resign from the government, following the addition of Avigdor Lieberman's Yisrael Beiteinu to the coalition.

Defense Minister Amir Peretz met Tuesday night with Prime Minister Ehud Olmert for a session Peretz called "critical." Although sources close to the two leaders described the atmosphere as "positive," the meeting was tense. Peretz presented demands to Olmert and said he wanted to come to his party's central committee with an achievement that would lessen opposition to Lieberman.

Immediately after the meeting with Olmert, Peretz consulted with his close associates, and with Minister Ophir Pines-Paz, who is leading the opposition to Lieberman together with MK Shelly Yachimovitch.

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During the meeting with Pines-Paz, which lasted over an hour, Peretz said he had not yet decided what he would recommend to his colleagues.

Sources close to Olmert are concerned about the pending central committee vote. Although the central committee is not expected to instruct the Labor ministers to resign, and the ministers themselves are not interested in doing so, the concern is that last-minute maneuvers of those supporting resignation will lead to a turnaround.

Tensions have been rising over the past two days in Labor - once it became known that the agreement between Yisrael Beiteinu and Kadima had been finalized - between opponents to Lieberman's entry to the cabinet, spearheaded by Pines-Paz and Eitan Cabel, and those in favor, led by ministers Benjamin Ben-Eliezer and Shalom Simhon.

From remarks made at a meeting of representatives of the kibbutzim and moshavim, it could be understood that Peretz does not want to break up the partnership with Olmert. "Although there is a huge chasm between us and Yisrael Beiteinu, we have other considerations," Peretz said. "No one should guess for a moment what recommendation I'm going to make to the central committee. But the day I come and say I make my recommendation, everyone can be sure I have examined the issue from every possible angle."

Pines-Paz said at the same meeting: "I ask myself what Yitzhak Rabin would have said now about the Labor Party."

Simhon arrived at the meeting following a personal meeting with Olmert and said: "I looked him in the eye and I have the impression that the things the prime minister told me were said out of deep commitment to the government guidelines and the partnership with Labor. He told me he was very interested in the party remaining in the coalition because he very much appreciated Peretz's leadership..."

Meanwhile, Israeli Arab members of the Labor Party have threatened to leave the faction if it approves the inclusion of Yisrael Beiteinu in the coalition during the cabinet vote on the issue Wednesday.

The Labor chairman has met in the last few days with some of the more prominent Arab members of the party in an effort to gauge the sector's overall sentiments with regard to Lieberman's entry into the government. Most of the Arab members have agreed that if the party's central committee agrees to sit in government with Lieberman, it would mark the end of the Arab sector's participation in the faction.

"If someone rejects the root of our existence and thinks we have no place in Israel, we won't be able to fulfill his plan. It's not a matter of love or hate. He wants a Jewish state without Arabs, after all," said MK Raleb Mahjadala, Labor's secretary for the Arab sector.

MK Nadia Hilu said Lieberman's entry into government has awakened a storm within the Arab membership of the Labor Party. "We will work against his inclusion. If Labor remains in the coalition, we'll lose our essence - the image of the party, its ideology and its platform. The party is fading and dissolving," she added.

If Lieberman is voted into the coalition, the 111 Arab delegates of the party?s 2,600-strong central committee will meet Saturday to decide whether to quit the party.

Peretz had been trying over the past few days to expand the coalition by bringing in Meretz and United Torah Judaism (UTJ). However a meeting with Yaakov Litzman of the UTJ led nowhere. On Tuesday, Peretz met with Meretz chairman MK Yossi Beilin before his meeting with Olmert, but after Olmert and Lieberman had signed an agreement the previous day.

Beilin warned Peretz against staying in a coalition with Yisrael Beiteinu. "Olmert cannot remain head of a government without Labor and with the extreme right, and therefore Labor's ability to veto Lieberman's joining the government is greater than it thinks," Beilin said.

It seems that Peretz's meetings Tuesday were mainly intended to show that he had not given in easily to Lieberman's joining the coalition.

Peretz and Lieberman were seen talking together privately at a table in the Knesset dining room Tuesday afternoon, when they knew all eyes were on them. The meeting had the appearance of being a chance one, but in fact it had been planned, and was intended to soften the atmosphere and to alleviate some of the tension between the two, who are expected to sit together at the cabinet table beginning next week.