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Representatives from Likud and the Labor Party convened on Monday morning for their first coalition negotiations, a day after the ultra-Orthodox Shas party signed into the incoming government with the promise of four ministerial portfolios.

Seven Labor MKs opposing party leader Ehud Barak - including Amir Peretz, Shelly Yachimovich, Ophir Pines-Paz and Eitan Cabel - sent a letter to Prime Minister-designate Benjamin Netanyahu prior to the talks, claiming that the decision to enter coalition negotiations was made without their approval.

"The appointment of a coalition negotiations team without approval of the Labor Party institutions is something that has never before been done," they wrote. "The rules of demcoracy have been broken in an attempt to force an established fact upon committee members."

Barak instructed Labor's negotiators to quickly reach a coalition agreement with Likud to allow him to bring an offer of ministerial positions to the party's central committee for approval when it meets on Tuesday afternoon.

The Labor Party is demanding five ministries: defense (which would be held by Barak); industry, trade and labor; infrastructure; agriculture; and a ministry-without-portfolio. Labor will also ask for one of its MKs to be appointed as a deputy minister and another the chair of a Knesset committee.

A central part of the agreement would be a new program dedicated to fixing socio-economic problems, a key topic being used by Labor to justify entering the right-wing coalition.

The so-called "joint plan for rescuing the economy" was formulated during a meeting last week between Barak, Netanyahu and Histadrut chief Ofer Eini.

The program would include a guarantee not to cut wages for public service employees. According to the plan, a special committee on economic decisions would be formed under the leadership of Netanyahu, Eini, Manufacturers Association President Shraga Brosh and Bank of Israel Governor Stanley Fischer.

On the diplomatic front, Labor will demand that the incoming Netanyahu government continue Israel's diplomatic process with the Palestinians and Syria, although the words "two states for two peoples" will not be mentioned in the possible agreement.

Barak bowed to pressure on Sunday and said he would stay with Labor even if the party's central committee knocks back his bid to join the coalition. Barak had previously refused to commit himself to staying in the party.

Eini, one of Labor's three negotiators, told Army Radio at the start of the meeting that he believed the party could reach a deal with Likud that would allow its entry into the government.

But another Labor negotiator, Agriculture Minister Shalom Simhon, was less optimistic: "Nothing is closed, and it doesn't look like their will be an agreement. Attorney Alon Gelhart was the third party official to represent the party in the coalition talks.

Shas secures four portfolios in incoming government

Meanwhile, Shas has lined up alongside Yisrael Beiteinu as partners in Prime Minister-designate Benjamin Netanyahu's fledgling coalition.

Under the agreement, Shas will receive four portfolios in the new government. Party chief Eli Yishai will become interior minister and deputy prime minister, MK Ariel Atias will become minister of housing, Yitzhak Cohen will receive the new government's religion portfolio and Meshulam Nahari will become a minister-without-portfolio in the Prime Minister's Office.

"Israel is set to face many challenges, both social and economic and on the diplomatic and security front. As a result it is only right to combine forces and form a broad government," Shas leader Eli Yishai told journalists after the deal was signed.

Likud legislator Gideon Saar, a member of Netanyahu's negotiating team, said the party would strive to broaden the coalition further in the coming days.

"Now we have 53 lawmakers tied into coalition agreements headed by Benjamin Netanyahu and in the coming days we will work to broaden the parliamentary base for support for his government," Saar said.

Coalition talks are scheduled to continue on Monday with United Torah Judaism and Habayit Hayehudi.

Shas was also promised an increase of NIS 1.4 billion in child welfare payments over the next three years.

Shas and Likud on Sunday said that they had reached a compromise on the ultra-Orthodox party's demand for the education portfolio and on the appointment of an exclusive minister for ultra-Orthodox education in the next government, sources familiar with the negotiations said.

United Torah Judaism was also said to have withdrawn its demand for the post of deputy education minister.

Netanyahu, who served as prime minister from 1996 to 1999, faces an April 3 deadline to complete the formation of a government after being given the task last month by President Shimon Peres.