Israel's right-wing Prime Minister Ariel Sharon and the new leader of the leftist Labour party agreed at a meeting on Thursday to hold early elections in late February or March 2006.
An early ballot has been on the cards since Amir Peretz defeated veteran peacemaker Shimon Peres last week in a surprise victory to lead Labour, vowing to leave the ruling coalition and force an election before it is due in November 2006.
Political uncertainty since Sharon completed the withdrawal of settlers and troops from the Gaza Strip in September has been a damper on hopes for renewed peacemaking with the Palestinians, also strained by violence.
Peretz said after the 20-minute meeting in Tel Aviv that he would accept any date that Sharon chose in the agreed period. He hoped a date would be set by November 21st, when Parliament is due to begin the process of preparing for elections.
Sharon's spokesman Assaf Shariv said the Prime Minister wanted to consult with other parties before fixing a date.
Since Israeli elections are held on Tuesdays, but not holidays, likely dates would be February 28, March 21 and March 28. Israeli media said Sharon favored February 28, quoting him as saying a snap election would prevent a political freeze.
"We must ensure that 2006 will not turn into a lost year with regard to the political process and to the effort to reach an agreement with the Palestinians," Sharon told Israel's Yedioth Ahronoth newspaper.
Political shock
Israel's political system was given a jolt last week by the victory of Peretz, a socialist union leader with a thick mustache, in a party leadership contest with Peres, who joined Sharon's alliance to assist the Gaza pullout.
Peretz, 53, shares the dovish views of 82-year-old Peres on making peace with the Palestinians and removing settlements from the occupied West bank.
But Peretz's call to restore social welfare policies and reverse free-market reforms have struck a chord with Labour members, while rattling markets that only recently pulled out of recession.
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Peretz said he hoped that setting an election date quickly would help calm the markets. The shekel edged higher and stock exchange index firmed slightly after the Sharon-Peretz meeting.
Opinion polls show that Peretz's toppling of Peres has given Labour a big lift but not enough to unseat Sharon, a 77-year-old former general who twice swept to power pledging tough action against a Palestinian revolt that erupted in 2000.
A Maariv newspaper poll showed that Likud would win 33 Parliament seats in the ballot, down from their current 40. Labour would get 27 seats up from the 22 they hold in Israel's 120-member Knesset.
Peretz's victory has also shaken Likud, which has been riven because of the Gaza pullout between supporters of Sharon and opponents of giving up settlements on land that Palestinians want for a state.
The crisis prompted speculation that Sharon could bolt to form a more centrist party. But political analysts now think there is a bigger chance that Likud will rally round Sharon.
Polls show that Sharon would beat rival Benjamin Netanyahu, an opponent of the Gaza pullout, in any leadership battle.
Palestinians have their own Parliamentary elections coming up in January.
President Mahmoud Abbas hopes to use them to bring Hamas Islamic militants into the political mainstream and bolster his drive for negotiations on statehood.
Israel insists that militants are disarmed before new talks on a US-backed peace "road map". Palestinians have failed to start disarming militants as they are meant to under the plan. Israel has not met its own pledge to freeze settlement building.
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