Israel stepped closer to an early election on Friday when a Jewish religious party refused to join a new coalition under Tzipi Livni, the designated successor to scandal-hit outgoing Prime Minister Ehud Olmert. Unless reversed, the decision of the ultra-Orthodox Shas party, a linchpin of successive governments, could kill off already dwindling hopes of a peace deal with Palestinians this year by leaving Israel under caretaker leadership for months. Shas said its word was final, and its refusal to consider dividing Jerusalem for the sake of a peace deal lay at the heart of it. But Shas was also seeking an increase in the budget for welfare, which Livni's centrist Kadima party rejected. “Shas made its decision based on its principles. If our demands had been met, we would have been in. They were not met, and we cannot join,” said Shas chairman Eli Yishai. “Shas cannot be bought and Shas will not sell out on Jerusalem.” Analysts cautioned there was still time for some coalition deal to be forged, and Livni had 48 hours to negotiate before the expiry of her self-imposed Sunday evening deadline. “Until matters are sewn up, they're still open,” said Gidon Saar of the right-wing opposition Likud, which is riding high in the polls and favours an election. “Tzipi Livni is still trying to tempt all sorts of party fragments and to form some sort of clumsy government.” There was no reaction from Livni, who is not likely to give up easily on her quest to be confirmed as Israel's first woman leader since Golda Meir in the 1970s. Some analysts think she could still form an effectively minority coalition relying on the support of smaller parties outside government, including Arab politicians. Kadima and the left-wing Labour party of Defence Minister Ehud Barak favour pursuing peace talks with the Palestinians and insist now is not the time to burden Israel with elections, more so in view of the mounting world economic crisis. Olmert, who resigned last month over corruption inquiries, formally remains premier, but without the political authority to sign a historic pact with the Palestinians as President George W. Bush desires before he leaves the White House in January. Livni and Barak would press on with talks, launched under the patronage of President Bush a year ago, in search of an accord to establish a Palestinian state alongside Israel. Likud, by contrast, has condemned Olmert's peace moves and on Friday suggested that Livni would sacrifice Jerusalem. Both Israel and the Palestinians claim the city as their capital. Olmert is ready to discuss giving parts of the city seized in the 1967 war back to the Arabs. Livni has been trying to forge partnerships since she was elected leader of Kadima six weeks ago. Her overtures for a “grand coalition” of the main parties were quickly rejected by Benjamin Netanyahu, the former prime miniser who heads Likud. “While Netanyahu knows that elections are bad for the country, he considers that at the moment they are the best thing,” said Livni ally Yoel Hasson.
