JERUSALEM An ultra-Orthodox Jewish party run by an octogenarian rabbi who has said Hurricane Katrina was divine punishment emerged Thursday as the kingmaker in forming the next Israeli government.
Having won a fight to be leader of the ruling Kadima Party, Tzipi Livni now will likely need Shas as a partner to become prime minister. But Shas opposes any compromise on Jerusalem, and including it in a coalition could tie her hands in peace talks with the Palestinians.
Livni's narrow victory in a party primary Wednesday to replace corruption-tainted Prime Minister Ehud Olmert as Kadima's chairman means she can become prime minister if she can put together a coalition government of her own.
Livni, now the foreign minister, has said she would like to keep the current four-party coalition intact.
Two of Kadima's partners, Labor and the Pensioners, aren't expected to balk. But Shas and its spiritual leader, Rabbi Ovadiah Yosef, are wild cards. The party holds 12 of parliament's 120 seats, enough to make or break the current majority bloc of 67 lawmakers.
Livni had barely declared victory Thursday morning when Shas laid down its demands.
"If it's clear Jerusalem is on the negotiating table and social-economic needs are not taken into consideration, then we won't be part of the coalition," Shas spokesman Roi Lachmanovitch said.
Shas Cabinet minister Ariel Attias said the party wants more funding from the cash-strapped government for the welfare projects that are popular with its low-income constituents.
Formal coalition negotiations won't begin until Olmert officially resigns and President Shimon Peres assigns Livni the task of forming a new government, which could happen next week.
But Livni said she would begin informal coalition negotiations immediately. In one of her first acts as Kadima leader, she scheduled a meeting with Shas leaders.
If Livni can't keep the coalition intact, elections would likely be called for early next year some 18 months ahead of schedule. In either case, Olmert will remain as a caretaker leader until a new Cabinet is approved.
With opposition leader Benjamin Netanyahu and his hard-line Likud Party polling well, Livni is under heavy pressure to keep the 67-seat coalition intact and avoid elections.
Netanyahu made his preference clear. "The cleanest and most democratic thing to do is to hold a general election," he told reporters Thursday.
Shaul Mofaz, the ex-defense minister and military chief who lost to Livni in the Kadima primary, called a news conference to announce plans to leave politics.
"I am not asking for role or a position in the Cabinet or the parliament," he said. He did not say whether he planned to resign now or just not to seek another term in parliament.
Negotiations could drag on for weeks.
Kadima lawmaker Amira Dotan said she expected Shas to make excessive demands. "This is the way we educated them for a long, long time," she said, referring to concessions made to Shas to entice the party into governing coalitions.
Dotan said Kadima is ready to compromise but has other options.
"Kadima is a centrist party," she said, so a number of parties "can very easily make a coalition with Kadima." She mentioned the small dovish Meretz party and smaller religious parties, which together have one less seat than Shas.
Israeli politicians traditionally have been willing to meet Shas' spending demands.
But declaring a moratorium on Jerusalem negotiations would be tough for Livni. As Israel's lead peace negotiator, she is committed to discussing all issues with the Palestinians. The future of Jerusalem, claimed by Israel and the Palestinians, is at the heart of the conflict.
Menachem Friedman, an expert on Jewish religious society in Israel, said Shas ultimately wants to stay in the government. He said Shas realizes any agreement with the Palestinians is a long way off.
"Jerusalem is a matter of wording," Friedman said. He thinks Shas will be more intransigent about its budget demands because the ultra-Orthodox Jewish sector, where most men shun work for religious study, is in desperate need of resources.
With Yosef at the helm, Shas burst onto Israel's political scene in the 1990s, appealing to the resentment of Sephardim Israelis of Middle Eastern and North African descent who were long snubbed by Israel's European-born ruling elite.
Yosef, a former chief rabbi of Israel who was born in Iraq, enjoys a papal-like authority among his followers, who revere him for his religious scholarship and his devotion to empowering the disenfranchised Sephardim.
But in wider Israeli society, Yosef known as much for his sunglasses, turban and gold-embroidered robes as his sometimes outrageous pronouncements is highly controversial.
He once enjoyed a reputation as a dovish religious figure, arguing that the saving of Israeli lives pre-empted settling occupied lands and that serious efforts should be made to reach a peace accord with the Arabs. But he did not support the 1990s peace agreements with the Palestinians and denounced Israel's withdrawal from the Gaza Strip in 2005.
In one speech, Yosef said the Old City of Jerusalem, home to shrines sacred to Judaism, Islam and Christianity, was "swarming" with Arabs "like ants."
"They should go to hell and the Messiah shall speed them on their way," he said.
On another occasion, Yosef castigated then-Prime Minister Ariel Sharon's Gaza pullout, then implored: "May God strike him down."
Yosef also stirred controversy by describing the Holocaust as God's retribution against the reincarnated souls of Jewish sinners. He said Katrina was punishment for godlessness in New Orleans and U.S. support for the Gaza pullout. And he once said that "walking between two women is like walking between two donkeys or between two camels."
Livni could theoretically lead a minority government with the tacit backing of far-left and Arab parties outside a ruling coalition. But such an unstable arrangement would make it difficult for her to claim a mandate for any sweeping agreements with the Palestinians or with Syria.