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Shas spiritual leader Rabbi Ovadia Yosef yesterday instructed party chairman Eli Yishai not to compromise on child allowance payments, as Kadima and Shas party negotiators ended their latest coalition talks Sunday evening without reaching an agreement. The sides will meet again after the Simhat Torah holiday.

Shas is insisting on allowances for "family payments" in 2009, at a cost of more than a billion shekels. Livni's negotiating team, including attorneys Israel Maimon and Yoram Rabad, presented the Shas negotiating team with a compromise during a lengthy meeting on Friday, but Shas appears unwilling to bend. Kadima has offered Shas an overall welfare package of around NIS 600 million, to be drawn from various budgetary sources.

Meanwhile, prime minister-designate, Kadima chair Tzipi Livni will likely ask President Shimon Peres to extend the three-week period he allotted her to form a government. By law, the prime minister designate may ask the president for an extention of two weeks.

So far, Livni has initialed a coalition agreement with Labor; however, talks with the ultra-Orthodox Shas and United Torah Judaism (UTJ) parties remain stalled.

Livni's associates said on Saturday that she intends to present her government on October 27, the day the Knesset's winter session begins. One scenario is that she will present a "narrow" coalition of 59 to 60 MKs, including Meretz and supported from the outside by UTJ, and work to bring Shas and UTJ into the coalition at a later date.

Sources close to Livni said the Kadima leader believes it is important to present the new government on the first day of the Knesset's winter session, but would continue her efforts to bring Shas and UTJ into the coalition in the remaining days.

A meeting may take place today between Shas and UTJ. Last night, the Shas team came to the home of Rabbi Yosef to discuss the talks with him. In attendance at the meeting were Yishai and Communications Minister Ariel Atias.

Meanwhile, Labor Party chairman, Defense Minister Ehud Barak, warned that the agreement between Labor and Kadima initialed last week might not be signed if Labor's demand for an additional representative on the Judicial Appointments Committee were not met. Speaking in an interview on Channel 2 television, Barak hinted that he would not oppose Shas' budgetary demands, although he was against child allowances according to the old system.

Senior Labor Party members have been in talks with senior Shas representatives over the past few days to persuade them to join Livni's cabinet.