Labor Party leader Amir Peretz, whose poor showing in the Monday primary put him out of the running to keep his position, will back whoever is most likely to obtain the treasury portfolio, sources close to the defense minister said Tuesday.

Former prime minister Ehud Barak, the winner in the first round of the Labor primaries, will square off against second place finisher Ami Ayalon next month in a final round to decide the party's new leader.

Barak had hoped to clinch the election in the first round, fearing that party rivals may throw their support to Ayalon, tipping the balance to the relative newcomer.

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Labor Party Secretary General Eitan Cabel, a supporter of Barak's candidacy, told Israel Radio on Tuesday morning that "Barak will have to sweat profusely in order to win the support of the Peretz voters," and that Barak's camp will do all that it can to win them over.

Throughout his campaign Peretz focused his verbal attacks on Barak, leading analysts to predict that he would support Ayalon in a second round.

Peretz's camp expressed satisfaction early Tuesday over the fact the he was successful in "conquering" the vote of the lower socioeconomic echelons in Rosh Ha'ayin, Ashdod, Sderot and Bat Yam.

Voter turnout was high in the Monday voting, with nearly two-thirds of eligible party members castingn their ballots.

As the final votes were counted early on Tuesday, the margin between Ayalon and Barak widened slightly, with Barak emerging as the leader.

Small margins separated the two candidates as during counting throughout the night, with the final result unclear until 87 percent had been processed. Barak finished with 34.2 percent of votes to Ayalon's 31.7 percent.

Current Labor Party leader Amir Peretz trailed throughout the poll, finishing with 21.8 percent of votes, while Ophir Pines-Paz had 7.9 percent.

Ami Ayalon surged ahead of his main rival for the leadership of the Labor Party when 46 percent of the votes had been counted early Tuesday, winning 37.3 percent to Ehud Barak's 30.3 percent.

Ayalon was ahead in Jerusalem, Tel Aviv and the kibbutzim, while Barak was leading the race in Dimona, Holon and the Druze village Beit Jan. The current party chairman, Defense Minister Amir Peretz, was in the lead in Lod, Bat Yam and Eilat.

Exit polls by two of Israel's major television channels had predicted different outcomes in the primary Monday, with Channel 1 giving Barak a narrow lead over main rival Ayalon, and Channel 2 saying that Ayalon had forged far ahead of Barak.

The exit poll conducted by Channel 1 television gave Barak 38 percent of the vote and Ayalon 36 percent. Trailing far behind them were Peretz with 17 percent, Ophir Pines-Paz with 7 percent and Danny Yatom with 2 percent.

Channel 2 television's exit poll gave Ayalon the lead with 39 percent, Barak got 33 percent, Peretz recieved 19 percent, Pines-Paz made out with 7 percent and Yatom got 2 percent.

A strong voter turnout was recorded in the primary throughout the day, which analysts believed would help Ayalon and Barak, and could bring one of them the 40 percent of the vote needed to declare a clear winner in the first round, thus negating the need for a second round.

The polls in the Labor Party primaries opened at 8:30 A.M. Monday morning. A total of 65.5 percent of the 103,498 party members turned out to vote for their preferred candidate by the time the polls closed at 9:00 P.M.

Activists campaigning for Ayalon on Monday estimated that the support for their candidate may reach the 40 percent needed to determine Ayalon the definitive winner in the first round. Should he fail to achieve 40 percent of the vote, the two candidates with the highest vote in the first round will go head to head in a second round. A second round would take place on June 12.

The activists believe that Ayalon will receive only a few votes more than his rival Barak, and that the need for a second round will hinge on a difference of a handful of votes.

When asked where the champagne bottles would be opened should he win, Ayalon replied "even when we win, we don't drink champagne, we drink herbal tea."

This election could have far-reaching effects for the government. Ayalon has said that he would not remain in the coalition under Prime Minister Ehud Olmert if he is elected party chief.

Some senior Labor officials oppose a pullout from the ruling coalition. But should the 19-member Labor faction bolt, Olmert could be forced to seek support from religious or far-right parties. It could also renew pressure on Olmert to resign.

Members of both camps said they think they can win in the first round, but many observers expect the vote to be so split among the five candidates running that none of them will get the minimum 40 percent for victory, making a second round necessary.

Earlier polls showed that Barak, a former prime minister, and Ayalon, a former Shin Bet security chief, were running nearly neck and neck, with neither reaching the 40-percent threshold.

Peretz, voting Monday in his hometown of Sderot, said that the thing he loves most after his wife is the analyzing polls.

"Every ballot that goes to Amir Peretz is one step closer to the Finance Ministry and progress in the social revolution," he said, referring to the platform upon which he was elected as party chair 18 months ago. Peretz has said he will leave the post of defense minister, in the wake of the fierce criticism leveled at him over the handling of the Second Lebanon War.

Peretz said Monday he believes "in the vote party members will prove that what they want is stability."

Barak, voting in Kfar Sava, echoed Monday his previous warning that only he can emerge victorious from a face-off with Likud leader Benjamin Netanyahu.

"I am telling the voters two things today: Think hard about who you want more in times of war. Only I, at the head of this large beehive of a party, can beat Netanyahu. I have a very good feeling this morning."

In the last few days, Barak and Ayalon have been targeting the kibbutz vote and the Arab vote, which are expected to determine the elections. Ayalon is seen as having a slight lead over Barak among kibbutz members, which has led Barak to focus his last-minute efforts in this sector.

Barak emphasized his two messages: "Think about who you want more in a time of war" and "Only I will beat Bibi" - a reference to Netanyahu.

Ayalon has been telling Labor members that they should vote for him because Labor under his leadership would win more seats if a national election was held than it would under Barak.

"I think many people understand that we are, in fact, not just voting on the future of the Labor Party but to a very large extent on the future leadership of the state of Israel," he said at the northern Israel polling station where he cast his vote.

The Prime Minister's Office is keeping an eye on the primaries because the results are expected to affect the fate of the Olmert government, since the Labor Party, under its new leadership, will have to decide whether to stay in the government.

Barak aides said Monday that if he wins, he will work to bring together the other candidates: Ayalon, Pines-Paz, Yatom and Peretz.

Former prime minister Barak, who has the support of cabinet ministers from Labor Benjamin Ben-Eliezer, Isaac Herzog and Shalom Simhon made dozens of calls Sunday to try to convince Labor members to vote for him.

Ayalon also spent much of Sunday on the phone, repeating his message that he does not plan to sit in a government led by Ehud Olmert.

Peretz said he was optimistic he would again emerge victorious in the primaries. "There are some who want to take away from us the social revolution we began," Peretz said in a recorded message to his supporters. "When we win once again we will demand the Finance Ministry and, from there, continue the social revolution we're dreaming of."

Peretz's tenure as party chairman has been overshadowed by his role as the defense minister during the Second Lebanon War. However, Peretz insisted that his supporters will give him a surprise victory and lashed out against Barak: "We all know the truth, that Ehud Barak was not a successful defense minister.

"He set mistaken concepts for which we paid a price: the unilateral withdrawal from Lebanon and a small and smart army."

As the candidates and their staff were immersed in campaigning, reports circulated about attempts to buy votes. The Ayalon camp said on Sunday it had been offered Arab-sector votes for money, but no official complaint has been filed. Yatom vehemently denied a rumor that he received an offer to have his campaign costs covered if he were to withdraw his candidacy.