Defense Minister and Labor Party chairman Ehud Barak said Thursday that he would call for the dissolution of Knesset and preparation for general elections, unless Kadima follows through and expedites its party primaries.

"We prefer governmental stability, and if we can build a government that appeals to us in this Knesset, we will consider establishing it together," said Barak. "If not, we will go to elections."

The calls for a Kadima leadership contest were triggered by an ongoing investigation into claims that the party leader, Prime Minister Ehud Olmert, took as much as $150,000 from a Jewish-American businessman over a two-decade period. Police are trying to establish whether the donations constitute criminal activity.

Barak said that Labor was still waiting for Kadima to decide whether it will conduct early primaries, and was prepared to call for a dissolution of Knesset by June 25.

"First we will hear the decisions from the other side," he said. "If the reality calls for it, we will bring on an initial reading of the law to dissolve the Knesset."

Barak, a former prime minister, has called on Olmert to step aside amidst the corruption scandal.

Such a move could enable Kadima to regroup around a new party leader, maintain its partnership with centre-left Labor and avoid an early election that opinion polls show Benjamin Netanyahu's right-wing Likud would win.

The Likud has called for a preliminary vote on June 18 to dissolve parliament. A Knesset spokeswoman said a firm date for the vote - one of three needed before the proposal is approved - would be set only on Monday.

Even if the legislation passes its first vote this month, final approval could stretch past Knesset's summer recess, which begins on August 3 and ends on October 26.

Olmert to Kadima: Get ready for primaries

Preparations are set to begin in the coming days for Kadima primary elections, after Olmert on Wednesday instructed two senior party officials to select a date for an early poll.

But the green light that Olmert has given for holding Kadima primaries has not satisfied Labor, which is demanding that a specific date be set and is threatening to vote in favor of dissolving the Knesset.

Olmert met Wednesday with senior party MKs Tzachi Hanegbi and Eli Aflalo, to determine the framework and a possible date for a primary.

Hanegbi, who is chairman of the committee for party affairs, and Aflalo, head of the Kadima Knesset faction, requested the meeting in light of growing internal pressure on Olmert to agree to a process that would move the primary forward.

Hanegbi said after the meeting that the decision was meant to restore political stability and to alleviate fears of Knesset factions concerned that general elections would be held too soon. The ball, he said, is now in Barak's court.

"As defense minister, he [Barak] is well aware of the sensitive strategic issues that are on the government's table," he said. "Now he can approach his colleagues who urge him to leave the government, and tell them that he set an ultimatum for Kadima."

"Kadima is picking up the gauntlet. We have set the primaries in motion, and early elections are now off the agenda," Hanegbi concluded.

As it stands, the Kadima primary is likely to be held in early September, to allow time for requisite changes to be made party regulations.

Olmert's meeting with the Kadima officials followed an announcement made Tuesday by the opposition Likud Party that it would present a bill next week calling for the Knesset's dissolution in an effort to set a date for new elections, as early as November.

Coalition partner Shas has also said it would support a proposal for the dissolution of the Knesset.

In light of these developments, calls within Kadima have intensified for a primary, in order to stave off the threat to dissolve the Knesset.

The leftist Meretz party said Tuesday that unless Kadima this month announced a date in the near future for a primary, it would also support the call to dissolve the Knesset.

"Kadima needs to do something," said Labor faction head, MK Eitan Cabel, on Tuesday. "We will not accept any delays and Kadima needs to replace Olmert by the time the summer recess is over. If this does not happen, we will go to [national] elections."

Hanegbi met with Olmert Tuesday but no decisions were made. Sources close to the prime minister said Wednesday that he did not intend to fight against the primary, or to enthusiastically support it.

The same sources said Olmert would like to hold talks on the matter with all the relevant people, including those ministers who consider themselves candidates for the leadership of Kadima.

In recent days, Olmert has reiterated - during talks with ministers and Kadima MKs - that following the cross-examination of the chief witness of the prosecution, American fundraiser Morris Talansky, scheduled for June 17, the entire political scene will change and things will become clearer.

This is the main reason, sources close to Olmert argue, that the premier would like to delay setting a date for the primary until after the cross-examination.