The Labor Party will demand that all Justice Minister Daniel Friedmann's reforms be scrapped as a condition for staying in a Tzipi Livni government, and any change in the court system would be done by consent, senior Labor sources say.
But if Livni agrees there will be no need to replace Friedmann "because he will resign on his own accord," a source said.
Labor and Kadima are expected to begin coalition talks in the next few days, following President Shimon Peres' formal invitation to Foreign Minister Livni to form a government. Labor will also demand that the state budget be amended.
The tension between Livni and Labor chief Ehud Barak seemed to have eased somewhat Monday. The two met privately in Livni's Tel Aviv office. Livni's aides will try to set another meeting with Barak Tuesday.
Livni's people say she is willing to make only minor budget changes and that if she agrees to Labor's excessive demands, other coalition partners will lengthen their wish lists.
If Livni succeeds in recruiting the required majority of 61 MKs, she will become Israel's first female prime minister since 1974.
Even before Peres gave her the official title of prime minister-designate Monday evening, Livni was conducting intensive talks with party leaders over their terms to join a coalition.
In the minute-long ceremony at the President's Residence, Livni, dressed formally in black and sitting in an armchair across from Peres, did not comment on policy issues.
Livni told reporters afterward: "These are not normal days for Israel. There are great diplomatic and economic challenges facing it." She appealed to the parties in Ehud Olmert's government to continue under her leadership, and to other parties to join, including the right-wing Likud party, led by ex-premier Benjamin Netanyahu.
"The first priority that is right for Israel is a government that will serve to the end of the current term, in late 2010," she said.
Netanyahu has rejected the idea of a broad national unity government with Livni, preferring elections.
"Reports that Livni is ready to reopen coalition agreements and the budget show that she is already flip-flopping. Clearly she is afraid to go to general elections and is attempting to deny the people the possibility to choose its leadership," Likud whip MK Gideon Sa'ar said.
Only Meretz and the Pensioners Party recommended to Peres to charge Livni with forming the government, bringing the total of MKs recommending Livni to 38.
The ultra-Orthodox Shas party remained silent Monday after Livni and Barak's talks. The right-wing Yisrael Beiteinu and National Union parties joined Likud in recommending general elections. The Arab parties, Justice for Pensioners and United Torah Judaism refrained from any recommendation.
If Livni fails to set up a coalition that can win parliamentary approval, Israel would hold an election within 90 days.
If Friedmann resigns, Vice Premier Haim Ramon may go with him. Ramon has been helping Friedmann advance his reforms in recent months, including setting up an inquiry committee over telephone bugging in the Ramon affair, in which Ramon was found guilty of having forcibly kissed a female employee.
Ramon has also helped Friedmann try to limit the power of the High Court of Justice and split the attorney general's authorities.
Barak recently blasted Friedmann's initiatives, saying his suggestion to set up a committee to probe the phone tapping "reeks of political interests of one minister and severely damages the justice system."
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