Livni calls for early Israeli election

Israel headed on Sunday towards an early election likely to kill any remaining chances for a peace deal with the Palestinians this year after ruling party leader Tzipi Livni dropped efforts to form a government.

"When I had to decide between continued extortion and bringing forward elections, I preferred elections," Kadima chief Livni told the Yedioth Ahronoth daily, in reference to budgetary demands from the ultra-Orthodox Shas party.

Livni, foreign minister and chief peace negotiator in U.S.-sponsored talks with the Palestinians, was expected to meet President Shimon Peres later in the day to inform him she had failed to put together a coalition after weeks of wrangling.

Peres can then set into motion a process leading to an early election, which political commentators said would apparently be held on Feb. 17, more than a year ahead of schedule.

Opinion polls have predicted the right-wing party of former Prime Minister Benjamin Netanyahu, an opponent of wide-ranging territorial compromise, would win a national ballot.

"We hope the Israelis will choose to stay the course with the peace process," Palestinian peace negotiator Saeb Erekat said after Livni confirmed comments from aides that coalition talks had failed.

The United States had hoped for at least a framework deal on Palestinian statehood before President George W. Bush leaves office in January.

But with negotiations so far showing few signs of progress -- with Israeli settlement expansion and the future of Jerusalem key stumbling blocks -- and Israel's political scene in turmoil, there appeared to be little chance of an agreement.

While Israel gears up for an election, it will continue to be led by Prime Minister Ehud Olmert, who resigned in September in a corruption scandal but stays on under law until a new government is formed.

Livni's comments on her failure to form a new government may indicate she intends to fight an election campaign that portrays her as a woman of principle to an electorate disillusioned with coalition haggling and suspicions of wrongdoing at the top.

"I'm not here to survive, I'm here to lead," Livni, 50, told the Maariv newspaper, ruling out her other option of trying to run the country with a government that lacked a strong parliamentary majority.

"You can't extort me," she told Yedioth Ahronoth. "The good of the country is at the top of my agenda."

Shas, which bills itself as a party representing Israel's poor, has long been a maker and breaker of coalition governments. It has garnered popular support through its network of religious schools and social welfare services.

The party, guided by an elderly rabbi and a major force among Israeli Jews of North African and Middle Eastern descent, had also sought guarantees Livni would not agree to share control of Jerusalem with the Palestinians.

"Jerusalem should not be divided," Shas leader Eli Yishai told reporters. "She informed us (she could not promise this)."