Defense Minister Amir Peretz will eventually be forced to give in to public pressure and abandon his ministry, despite his declarations to the contrary, senior members of Peretz's Labor Party predicted Thursday.

Peretz reiterated his determination to retain this portfolio during a meeting of the party's bureau Thursday.

Both Peretz's office and associates of Prime Minister Ehud Olmert denied that a deal was in the works to offer Peretz the Finance Ministry in exchange for his resignation as defense minister. "Peretz is continuing to do his job as defense minister, and no other idea is on the agenda," read a statement from Peretz's office.

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Olmert's associates believe Peretz would accept such a deal, since the treasury was always his first choice. But the same reasons that made Olmert refuse to let him have the treasury then are still valid, they said.

People who have spoken with Olmert recently said that the premier is unwilling to entrust Peretz with the treasury, even if this means getting him out of the Defense Ministry.

Senior Labor officials said Peretz would have to find some dignified way to leave the ministry. Otherwise, they said, Olmert is liable to wait for an opportune moment - perhaps if United Torah Judaism joins the coalition, giving him a parliamentary majority even without Labor - and then fire Peretz, confident that other Labor ministers would not resign in protest if the coalition could survive without them.

Olmert and Peretz met for a routine discussion Thursday, for the first time since their well-publicized spat over Peretz's phone call to Palestinian Authority Chairman Mahmoud Abbas. For most of the meeting, various aides were present, but at the end, the two spoke privately for a few minutes.

Both men's offices said the meeting focused on defense issues rather than politics. However, sources in both offices predicted the two would hold a private meeting later this week in an effort to ease the tension between them.

Peretz, meanwhile, used Thursday's party bureau meeting to attack his colleagues for what he termed a "smear campaign" against him.

"I tell you that if there is an act of irresponsibility, it is the smear campaign, both in-house and outside, against me - against the defense minister of the state of Israel. This is first and foremost a strike at the national morale," he said. "Apparently, this has become the national fashion: Anyone who doesn't have an agenda can attack the defense minister."

Noting that the security problems Israel faces in both the north and the south have their roots in decisions made long before he took office, Peretz said he was "shocked" at the former office-holders being proposed as replacements for him, as "I see that the candidates are those who need to give an accounting for their policy of closing their eyes" to the growing threats in their previous jobs. "Battalions that haven't trained for five years or six years ... How did this situation arise?"