Olmert builds Israeli coalition

Interim Prime Minister Ehud Olmert began building a coalition yesterday after winning an election on plans to set Israel's final borders within four years with or without agreement of its Palestinian neighbour.

In Gaza, Palestinian President Mahmoud Abbas swore in a Hamas government, handing the militants an administration on the brink of financial collapse and fighting Western isolation.

The United States in response ordered its diplomats and contractors not to have contacts with any Palestinian ministries, US officials said. Hamas is committed to Israel's destruction.

Appealing to Mr Abbas, Mr Olmert said Israel favoured peace negotiations to end decades of conflict.

But in the continued absence of talks - a remote prospect with Hamas now in power - Mr Olmert has vowed to draw Israel's frontier by 2010 by removing isolated settlements in the occupied West Bank and expanding bigger ones.

Palestinians say such a move would deny them the viable state they seek in the West Bank and Gaza Strip.

Mr Olmert's centrist Kadima party fared worse than expected in Tuesday's poll, signalling he might struggle to sustain support for his plan. Kadima's showing of 28 seats in the 120-member parliament was among the lowest for an election winner.

But some political analysts said Mr Olmert should be able to stitch together a coalition that would avoid the need to negotiate with right-wing parties opposed to any withdrawal from West Bank land that settlers see as a biblical birthright.

"I think we can run a government with 28 seats. It will be difficult, but possible," elder statesman and senior Kadima politician Shimon Peres said on Army Radio.

In separate comments to Channel 2 television, Mr Peres said it would be "at least a year" before Mr Olmert's West Bank plan is put into effect.

The sweeping measures would uproot tens of thousands of Jewish settlers while tracing a border along a fortified barrier Israel is building inside the West Bank.

Mr Olmert has said he would seek support from the United States and other countries before taking unilateral steps. US President George W. Bush, in a telephone call to Mr Olmert, invited him to the White House after he forms a government.

Opinion polls had originally predicted Kadima would win 44 seats. Election results showed that second place went to centre-left Labour, with 20 seats, while other parties netted between four and 13 seats.

Kadima, founded just four months ago, was expected to seek a coalition with Labour and small parties, in talks that could last weeks. Some religious parties and one representing pensioners could back his West Bank plan.

President Moshe Katsav is expected to formally assign the task of putting together a government after consultations with parties on Sunday.

The Israeli election came two months after Hamas' shock win in parliamentary polls, prompting the Jewish state to halt tax revenue transfers and threats from Western countries to cut aid unless the group recognises Israel and disarms.

The new Palestinian ministers swore an oath on the Koran against a backdrop of portraits of Mr Abbas and late leader Yasser Arafat.

The US directive on Hamas bars American officials from having contacts with Hamas-appointed government ministers, whether they are members of the group or not, as well as with those who work for them, US officials said.