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Kadima officials said Thursday morning that Labor would not receive the finance portfolio, but that if Labor joined the coalition led by Kadima, it might be given the defense portfolio, Army Radio reported.
Both parties' demands to control the Treasury presented the coalition talks between Acting Prime Minister Ehud Olmert's victorious Kadima and the second-place Labor Party - that have not even officially begun yet - with their first crisis on Wednesday.
Olmert convened members of his newly formed coalition negotiating team at the Industry, Trade and Labor Ministry to discuss strategy for the coalition talks that will formally begin following President Moshe Katsav's consultations on Sunday with the leaders of the parties set to enter the Knesset.
It was decided at the meeting to try to form the widest coalition possible and to give potential coalition partners the message that Olmert had several alternatives available. Olmert's aides said the ideal coalition included 88 MKs from Kadima, Labor, Shas, Israel Beiteinu, United Torah Judaism and the Gil Pensioners' Party.
"Just as I said before the election, no Zionist parties will be ruled out," Olmert said in the meeting. "Any Zionist party can be part of the coalition."
Kadima's first goal in the talks will be to lower Labor's asking price. Olmert's associates acknowledged that because Kadima won only 28 seats, the party might have to give Labor one or even two of the top four portfolios of Foreign Affairs, Defense, Finance and Education. But they said the Treasury was off limits in coalition talks, especially with regard to Labor chairman Amir Peretz.
"There is a limit to what the economy can tolerate," an Olmert associate said. "Peretz has a history of paralyzing the economy with strikes, so if he were appointed, the stock market would collapse. He can't be finance minister for the same reason that [Israel Beiteinu head] Avigdor Lieberman cannot be defense minister."
Such insults to Peretz offended Labor Party leaders who insisted they would have to be paid a reasonable price to join the coalition, unlike the national-unity government of Prime Minister Ariel Sharon, where Labor's top portfolio was the Interior Ministry.
"A party that has run on a socioeconomic platform could not possibly accept anything less than the Finance Ministry," a senior Labor official close to Peretz said. "The basis of any talks would be Peretz heading the Finance Ministry."
Kadima officials also said they would refuse Peretz's main coalition policy demand of raising the minimum wage to $1,000 a month, a measure that they warned would harm the economy. They said it would be easier for Kadima to compromise on portfolios than matters of policy.
"Labor is not needed in the coalition if Israel Beiteinu and the haredi parties join," Education Minister Meir Sheetrit said. "It would not be a problem for Shas and Lieberman to join the coalition because the convergence plan will not be implemented tomorrow. We are still going to make a serious effort to negotiate with the Palestinians."
Forming a government without Labor could allow Kadima to avoid giving up a major portfolio. Olmert's associates said the top portfolio Kadima was most willing to relinquish was Defense. Shaul Mofaz is seen as unlikely to keep the portfolio in any scenario.
If Labor is given the Foreign Affairs portfolio, Tzipi Livni could shift to Defense. Should Labor be given both Foreign Affairs and Defense, Livni could become finance minister. But the main candidates to head the Treasury are Tourism Minister Avraham Hirchson and Sheetrit.
Olmert will begin holding personal meetings with the heads of the parties on Sunday. Peretz is expected to tell Olmert that in addition to the Treasury, a "social bloc" of Labor, Shas and the Gil Pensioners' Party would demand the socioeconomic ministries: Education, Industry, Trade and Labor, Social Affairs and Interior.
Lieberman said he had not contacted Olmert, but that he was open to serious negotiations with Kadima. He said he opposed further unilateral withdrawals and the road map, and that he had seen no formal document outlining Kadima's diplomatic strategy so he could not comment on its compatibility with his own. He said that Olmert would need an additional coalition partner outside the obvious left-wing bloc and that Israel Beiteinu was more compatible with Kadima on economic issues than Shas.
Rafi Eitan, head of the Gil Pensioners' Party, indicated last night that he did not support Olmert's convergence plan for uprooting West Bank settlements and fixing a new border. Appearing on comedian Eli Yatzpan's TV variety show, Eitan was asked his opinion of Olmert's plan.
"When you consolidate," Eitan replied, "you pull yourself in. All my life I've tried to expand, to stretch out, so maybe this doesn't work out."
Sheera Claire Frenkel, Tovah Lazaroff and Larry Derfner contributed to this report.