updated 1/16/2008 6:16:23 AM ET 2008-01-16T11:16:23

A hawkish faction in Prime Minister Ehud Olmert's coalition pulled out of the government on Wednesday, weakening his support base at a delicate moment in Middle East peacemaking but potentially freeing his hand for greater concessions to the Palestinians.

The defection of hardliner Avigdor Lieberman's Yisrael Beiteinu Party did not deliver a fatal blow to Olmert's government, because it would still command 67 of parliament's 120 seats. But with other factions also making noises about quitting, and a potentially damning report on the Lebanon war forthcoming, the assault on Olmert's leadership threatened to snowball.

Lieberman had repeatedly threatened to leave the government once Israeli negotiators began tackling the core issues of Israel's decades-old conflict with the Palestinians _ final borders, sovereignty over disputed Jerusalem, and Palestinian refugees who lost homes in Israel during the war that broke out following the Jewish state's creation in 1948.

He made good on that promise Wednesday after negotiators broached those issues earlier in the week.

'Fatal mistake'
"Negotiations on the basis of land for peace is a fatal mistake," Lieberman told a news conference.

"If we pull back to the 1967 borders, everyone should ask himself, what will happen the following day?" Lieberman asked. "Will the conflict stop, will the terror stop? Nothing will change."

Olmert had tried to persuade Lieberman to stay in the government in a meeting with him on Tuesday. But Yisrael Beiteinu decided Wednesday to quit, Lieberman said.

Olmert's office released a statement saying the prime minister was determined to pursue peacemaking.

"There is no substitute for serious negotiations with a goal of achieving peace," the statement said. "That is the order of the hour."

Ruhama Avraham, a Cabinet minister from Olmert's Kadima Party, said the government would "overcome" Lieberman's defection.

Israel's peace camp welcomed Lieberman's departure.

"This opens the possibility of a peace coalition that can advance the negotiations with the Palestinians and stop construction in the settlements without excuses," said Yariv Oppenheimer, director of the anti-settlement Peace Now group.

Political motivations might have also played a role in Lieberman's move: Sitting in a peacemaking coalition could undermine any ambitions he might have to position himself as the leader of Israel's political right wing.

At his news conference, however, he denied any interest in supplanting former Prime Minister Benjamin Netanyahu as leader of Israel's rightwing opposition.

Yisrael Beiteinu's defection comes at a sensitive time for Olmert.

Relaunched talks
Israelis and Palestinians recently relaunched talks after a seven-year breakdown, and pledged to try to reach a peace deal by the end of the year. Washington is pushing Israel and the Palestinians to make serious progress, and President Bush paid a first presidential visit to the region last week to prod the two sides along.

But intensified clashes with Gaza militants who are barraging southern Israel with rocket and mortar fire are complicating talks already fraught with tension over Israeli construction in disputed territory and Palestinian violence in both Gaza and the West Bank.

In addition, a government panel investigating Israel's 2006 war against Hezbollah guerrillas in Lebanon is to issue its final report at the end of the month. That inquiry is expected to amplify the scathing criticism its interim report piled on the prime minister over his handling of the conflict, which ended without Israel's having achieved its declared aims of returning two captured soldiers and crushing Hezbollah.

A harsh report would likely renew calls for Olmert's resignation — and could pressure Defense Minister Ehud Barak to pull his 19-member Labor Party out of the government, too. Before becoming minister in June, Barak called on Olmert to resign over the war, but joined his coalition to help burnish his own leadership credentials as he tries to reclaim the premiership he lost in 2001.

Another weak link in the government is the ultra-Orthodox Shas Party, whose 12 lawmakers have also threatened to quit if Israel agrees to any compromise over Jerusalem, whose eastern sector Israel captured in the 1967 Middle East war. Palestinians claim east Jerusalem as the capital of a future state.

With Barak and Labor trailing in public opinion polls, he won't be eager to move up elections before their scheduled 2010 date, Israeli political commentator Hanan Crystal predicted. And Shas is likely to stay in the government so long as peace talks aren't making serious progress, he added.

"The government is wounded, but not fatally," Crystal said. "It's still alive."

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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