Both Shas and Meretz decided on Monday they would recommend President Moshe Katsav call on Acting Prime Minister Ehud Olmert to form the new government.
Shas's decision was made during an evening meeting of the party's spiritual leaders headed by Rabbi Ovadia Yosef in Jerusalem.
Shas Chairman Eli Yishai said the ultra-Orthodox party will demand the new government look out for the lower socio-economic sectors of Israeli society and concern itself with maintaining the country's Jewish identity.
Earlier on Monday, Meretz had announced it would throw its weight behind Olmert.
Meretz Chairman Yossi Beilin on Monday nixed the notion of his party joining a government led by Labor Party Chairman Amir Peretz, telling Israel Radio that such a move would mean joining a coalition with a right-wing presence, which his party rejects.
"Of course we will tell the president that our preferred candidate from an ideological stance is the leader of the Labor Party. The question is what kind of government, if at all, would he [Peretz] be able to establish. He can only set up a government without Kadima by going with the right-wing parties," Beilin said.
Meanwhile, Peretz on Monday denied rumors that he intends to form a coalition with right-wing parties to undermine the obvious candidate for premiership Olmert.
Peretz told his aides that he will not form a coalition with the right even though he can do it "in ten minutes."
"I will not form a government that is unnatural that will not promote a worldview that espouses both welfare reforms and peace negotiations," he said.
The initiative to have Peretz assemble the coalition took another blow after Meretz announced it would not recommend Peretz for premiership.
Earlier on Monday, Peretz's colleagues Shelly Yachimovich and MK Ephraim Sneh denied that Peretz was holding negotiations with right-wing parties.
Even though there were many suggestions by right-wing parties to form a coalition without Kadima, Peretz "utterly rejected" them, Yachimovich told Israel Radio.
Pensioners Party Chairman Rafi Eitan said after meeting Katsav on Monday that Labor and Kadima must overcome their disagreements and open talks to establish a coalition together.
"There are two large parties - Kadima and Labor. Their platform is more similar than dissimilar. I suggest these two parties sit down, straighten out their differences and form the next government together," Eitan said.
Labor astirEarlier Monday, senior figures in Labor lashed out at Peretz over his alleged bid to set up a "social front" government that would include the right-wing parties.
Labor Party officials began Sunday to work on establishing a coalition led by Peretz, which would include right-wing parties, but not Kadima. Labor was trying to recruit Shas, United Torah Judaism, Meretz, the Pensioners' Party and either the Likud or National Union-NRP, with outside support from the Arab parties.
The National Union-National Religious Party on Monday showed reserved support for Peretz as candidate for forming the coalition, after initially saying it would back fully Labor's head.
Coming out of the party's meeting with Katsav on Monday, NU-NRP leader MK Benny Elon stressed that his party's main concern was to promote social reforms.
"We have understood there is a genuine intention to form an emergency welfare government, and this is a government we will fully support," Elon said.
"And if the one to assume this challenge is Amir [Peretz], then him we will back," he said.
On Sunday the NU-NRP faction said it would recommend to President Katsav that Peretz form the next government.
'Napoleon complex'Army Radio on Monday quoted party officials as describing Peretz as having a "Napoleon complex."
"People didn't vote for us so that we could lead a right-wing, ultra-Orthodox government," said Matan Vilnai, No. 11 on the party's Knesset list. "It's not completely legitimate and it's also stupid."
Vilnai announced Sunday that he opposes Peretz's move to join with the right to form a coalition without Kadima.
"I will not support a process that links us with National Union," Vilnai said. "The people who voted for us did not vote for the ultra-Orthodox or [Yisrael Beiteinu chairman Avigdor] Lieberman. It's a matter of national responsibility."
Senior Labor and Kadima officials are also concerned that a dispute between Peretz and Olmert is endangering a coalition partnership between the two parties.
Vilnai also attacked Kadima on Sunday, saying: "I suggest that Kadima and Olmert stop demonstrating their disdain for Peretz. Everyone knows how the next government will look, and it's worthwhile to stop wasting time with spin and political games."
Other Labor officials also sharply criticized the behavior of Peretz and party secretary general Eitan Cabel on Sunday, saying it was causing a rift on the left.
"Peretz is acting against explicit commitments he made to the voter - commitments that were made in our names as well - that we would not establish a government with the extreme right after the elections," a senior party official said. "He is causing a major split in the left-wing camp."
The officials said Peretz does not have full support in his pursuit of the right wing, but refrained from describing their differences in detail since they want to be Labor ministers in the next government.
Kadima officials slam OlmertTop Kadima officials have criticized the way in which Olmert and his associates are negotiating with Peretz. They said they were concerned the dynamics of mutual recriminations would make it difficult for the two parties to sit in the same coalition. The officials said that Kadima's attacks on Peretz were unnecessary and caused him to announce that he would not give up on the finance portfolio.
"After they say that he's dangerous as a finance minister, that he's not suitable and that he's acting like the chairman of a workers committee, what did they expect?" one of the officials said. "That's not how you begin a partnership. It was possible to get this over with quickly, and now it has become complicated."
The top Kadima officials also said that the dispute is damaging negotiations.
"People should have been calmed rather than inflamed," said one of the officials. "Even so, the possibility of Peretz forming a government is not reasonable, so what's the pressure? In addition, whoever sees himself as a minister is tense. It's not a healthy situation."
Ra'am-Ta'al, Peretz to cooperate on social issuesRepresentatives of Ra'am-Ta'al, who recently picked up a fourth seat in the new Knesset, met Monday with Peretz and said they would not endorse any party leaders as candidates for prime minister.
Ra'am-Ta'al leaders and Peretz agreed, however, to cooperate following the creation of a new government on social and economic issues, particularly those tied to the Arab sector.
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