President Moshe Katsav will ask Acting Prime Minister Ehud Olmert on Thursday to form the new government, the President's Office said in a statement issued Wednesday.

The statement said Katsav would meet Olmert on Thursday, after which the president will announce he has asked the interim leader to form a coalition government.

Defense Minister Shaul Mofaz, denying reports he had charged that Peretz lacked sufficient responsibility to take on the defense portfolio, on Wednesday telephoned the Labor leader to assure him he was confident he could do well in any ministerial position - even defense.

Sources in Labor and Kadima said Tuesday that Peretz would receive the defense portfolio in the next government, and that Labor would also be given the education portfolio.

Meanwhile, Olmert told Peretz that Yisrael Beiteinu head MK Avigdor Lieberman would be a member of the next government. Olmert made the statements in secret meetings between the two men, during which it was decided Labor would join the coalition as the senior partner.

Peretz did not deny Olmert's remarks about Lieberman, although Labor had pledged not to sit in the same cabinet with Yisrael Beiteinu. "When the time comes, we'll deal with it," senior Labor politicians said.

Meretz chair Yossi Beilin reiterated Tuesday that Meretz would not join a cabinet of which Lieberman was a member.

During talks before a joint press conference with Peretz on Tuesday, Olmert rejected the Labor leader's original demand for a "joint" Kadima-Labor government. Olmert also rejected Peretz's demand that Kadima not negotiate with other factions before talks with Labor were complete.

Instead it was decided that Kadima could negotiate with all parties, but not before signing the guidelines for the coalition platform, which would be formulated by Kadima and Labor together.

Despite Peretz's repeated rejection of Yisrael Beteinu as a potential coalition partner with Labor, sources in the party said Tuesday they did not believe Peretz's stand was "the end of the story." They said they believed Olmert would not accept the "stigma" that Peretz had placed on Lieberman.

"Peretz said many things recently that he took back," a senior Yisrael Beiteinu figure said. "We have to reason to think this time he will be consistent. From our point of view, nothing is final yet."

The sources said Olmert was interested in bringing Yisrael Beiteinu into the government, and a decision would be made based on the guidelines for the cabinet that would be drawn up, and not on rejections on a personal basis."

Olmert, Peretz said to have picked portfolios Labor Party sources said Tuesday that the talks between Peretz and Olmert had sewn up the matter of which portfolios Labor would get.

They surmised that Peretz would take defense; education would go to Yuli Tamir; justice to Isaac Herzog, plus another four portfolios.

Peretz's announcement about the agreements reached with Olmert and the meetings with him took most senior Labor members by complete surprise. Aside from one or two, none of them knew of the about-face Peretz had made, from trying to form an "emergency social government" to close cooperation with Olmert.

Some senior people were greatly offended by Peretz's conduct and said he had sent them out to do the tough job of explaining the social coalition while he was already hatching plans with Kadima. "Some felt that Peretz had toyed with them," one senior official said.

Others praised Peretz for showing maturity. "He decided to take the straight path and that's good," said MK Colette Avital. According to MK Yuli Tamir, "Amir's move proved that everything that happened in the past two days with the social government was a tempest in a tea cup. We got the senior partnership in the government and that's what we wanted."

At the faction meeting Tuesday at party headquarters in Tel Aviv, Peretz explained his actions and claimed that had he done otherwise, Labor would have "bashed" him.

"I was in talks with Olmert on Sunday. I waited all of Monday to see whether word of the meeting would leak. Had it leaked, I would have understood that it's a waste of time and the next four years would be just spin. To my surprise and delight, the matter was kept silent. No one knew a thing about it. Tuesday, after the atmosphere cleared, we moved on to the truly important phase," Peretz said.

Katsav: Olmert only real candidate to form gov't President Moshe Katsav gave a strong indication Tuesday that he will ask Acting Prime Minister Ehud Olmert to form the next government, saying that the Kadima leader is the only real choice.

Speaking to reporters in Jerusalem, Katsav said that after Labor Party Chairman Amir Peretz called him to express Labor's support for Olmert, there were really no other candidates. The president also expressed the hope that he would meet with the person selected to form the government before the Passover holiday begins next week.

Katsav's consultations with the other parties is scheduled to end Wednesday, with talks between the president and representatives of United Torah Judaism. The UTJ officials have already twice cancelled the meeting on the grounds that they needed to consult with their Torah sages.

The head of the Central Elections Committee, Supreme Court Justice Dorit Beinisch, was to transfer the official results of last week's elections for the 17th Knesset to Katsav on Tuesday.

Peretz and Olmert held a joint press conference on Tuesday, at which the Kadima leader confirmed newly-released reports that the two have held behind-the-scenes talks over the past two days.

"We are happy to announce that immediately after the president gives me the mission of putting together a government, we will open coalition talks that will allow us to form a government in which the Labor Party will be a senior partner," Olmert said.

The announcement came as a surprise, signalling the end of an apparent rift between Olmert and Peretz that began after last week's national election.

A senior Labor official said that the recent "spins" on Peretz's moves to form an "emergency social government" were a "smokescreen" intended to conceal contacts between Labor and Kadima.

However, Olmert and Peretz did not mention the division of portfolios among the parties, as Katsav has not yet officially invited Olmert to put together the coalition.

Over the past 24 hours, media reports have concentrated on an apparent effort by Peretz to court right-wing partners in order to create an alternative "social bloc" separate from Kadima. In reality, Olmert and Peretz were holding talks.

Peretz told Labor colleagues on Tuesday afternoon, "There was no intention to form a right-wing government. If we had wanted, we would have set up such a new government."

Olmert told Kadima members that in order for Labor to join the coalition, Kadima must give them either the finance or defense portfolios. Olmert's statement appeared to suggest that Tzipi Livni would remain foreign minister.

Peretz's associates said they believed he would agree to become defense minister in exchange for having social legislation included in the coalition's platform and that he would be able to influence budget policy.