Israel elections update

It appears that Olmert and Peretz may have patched up their differences, with Labor's Peretz prepared to go to Israeli president Katsav and ask him to designate Ehud Olmert as Prime Minister. Labor and Kadima together have 48 seats in the 120 member Knesset.

The price appears to be a capitulaton on Labor's demand for a raise in the minimum wage and a roll back in the market economy policies of former Finance Minister Netanyahu, as well as some key ministries. One of my sources says that Peretz will get the defense ministry portfolio.

Olmert has already managed to make deals with Shas, ultra-left Meretz and the Gil (pensioners) party. Hed also invited Likud to join the government.The orthodox party Shas wants extra allowances for large families, the poor and its education system; the Pensioners party wants part of the allowances cut by the previous government restored, pension levels increased, more state-funded medicines and a constitutional charter setting out senior citizens’ rights.

Coming up with all of these gimmees will likely necessitate cutting Israel's $12bn defense appropriation, the largest single part of the new, still unapproved budget.

Olmert maybe able to substitute Israel Beiteinu for one of the prospective partners, which would be less costly interms of budget outlay..but Olmert would have to come to an agreement with Avigdor Lieberman about any withdrawals in Judea and Samaria (the West Bank).

Any way you slice it, this appears to be a fairly fragile coalition government, as I predicted. Stay tuned....