Israel yesterday headed 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.
"I notified the President that under the current circumstances, we should hold an election," Ms Livni said after meeting Shimon Peres, Israel's head of state.
Ms Livni, head of the centrist Kadima party, said prospective political partners had made "impossible demands" in weeks of bargaining, in which the ultra-Orthodox Shas faction had sought a steep boost in social welfare spending.
"There are prices that can be paid. There are prices others are ready to pay, but I'm not willing to do so at the expense of the country and its people, just to be Prime Minister," Ms Livni said in broadcast remarks.
Political commentators forecast a parliamentary election would be held on February 17, more than a year ahead of schedule. Last month, Mr Peres asked Ms Livni to form a government after Prime Minister Ehud Olmert, hit by a corruption scandal, resigned.
Mr Olmert remains Prime Minister until a new government is formed.
With Ms Livni at his side, President Peres said that, in accordance with legal procedures, he would consult over the next three days with leaders of other political parties, adding: "Elections are no tragedy".
Once he has held those meetings, Mr Peres can then set into motion a process that would lead to an early election in three months' time.
Opinion polls have predicted the right-wing party of former Prime Minister Benjamin Netanyahu, an opponent of wide-ranging territorial compromise, would win the ballot.
"We hope the Israelis will choose to stay the course with the peace process," Palestinian peace negotiator Saeb Erekat said.
The United States had hoped for at least a framework deal on Palestinian statehood before President George W. Bush leaves office in January.
Negotiations have so far shown few signs of progress - Israeli settlement expansion and the future of Jerusalem are key stumbling blocks. And with Israel's political scene in turmoil, there appeared to be little chance of an agreement.
Ms Livni's comments on her refusal to bend to budgetary demands 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.
"We have reached the point where I think the public is truly fed up with politicking," Ms Livni said at Mr Peres's official residence.
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 Ms Livni would not agree to share control of Jerusalem with the Palestinians.