Israel's Peres meets parties after PM Olmert quits

By Jeffrey Heller

JERUSALEM (Reuters) - Israeli President Shimon Peres held talks on Sunday with parliamentary factions on the formation of a new coalition government after the resignation of Prime Minister Ehud Olmert.

Olmert, who faces criminal indictment in corruption probes, submitted his resignation to Peres on Sunday, four days after he was replaced by Foreign Minister Tzipi Livni as leader of the ruling Kadima party in an internal election.

"Prime Minister Ehud Olmert submitted his resignation to me tonight," Peres told reporters at his Jerusalem residence.

After the announcement, Peres met representatives of the four largest parties -- Kadima, Labour, Likud and Shas -- and on Monday he will hold talks the remaining nine factions.

Israeli media reported that Peres would nominate a party leader to form the next government on Monday and indicated that Livni was his likely choice.

If Livni, Israel's chief negotiator in peace talks with the Palestinians, gets the nod she will have up to 42 days to try to put together a coalition.

If successful she will become Israel's first woman prime minister since Golda Meir in the 1970s.

Olmert could stay on as interim prime minister for weeks or even months until a new coalition government is formed or a new parliamentary election held.

PEACE DEAL LOOKS DISTANT

Olmert said earlier at the weekly cabinet session he was stepping down "in accordance with good governance" and history would judge the achievements of an administration which came to power in 2006.

The political uncertainty has dimmed even further prospects of an Israeli-Palestinian peace deal which the United States had hoped Olmert and Palestinian President Mahmoud Abbas could achieve this year.

Failure to build a coalition would lead to an early parliamentary election, otherwise not due until 2010.

Livni appeared to face an uphill battle to retain a political partnership with Defense Minister Ehud Barak's Labour Party and the ultra-orthodox Shas party.

In a snub to Livni, Barak met opposition leader Benjamin Netanyahu of the right-wing Likud on Saturday to discuss the political situation. Livni and Barak met late on Sunday.

Political commentators said it appeared Barak and Netanyahu were trying to work out a deal for an early election and by keeping Olmert on as caretaker prime minister, freeze Livni out of the top leadership spot before a national ballot.