Israel's key Shas party will not join coalition

JERUSALEM (Reuters) - The Israeli ultra-orthodox Shas party decided on Friday not to join a coalition led by Israeli premier-designate Tzipi Livni, a party spokesman said, making early elections almost inevitable.

On Thursday, Livni set a Sunday deadline to either say she can form a new Israeli coalition government or announce failure, thereby starting the constitutional process that leads to an early general election.

Shas spokesman Roy Lachmanovich said in a statement that the party was unable to reach agreement with Livni's Kadima party over two main issues -- the status of Jerusalem and social welfare benefits for the poor.

"Shas has asked only for two things ... real financial help for the (financially) weak in Israeli society and protection for Jerusalem ... which is not merchandise for sale."

Lachamnovich said that as a result, the party's spiritual leader, Rabbi Ovadia Yosef, who heads a group of sages who determine party policy, decided not to continue coalition talks.

Foreign Minister Livni has been trying to forge political partnerships since she was elected leader of the centrist Kadima party last month, taking over from Ehud Olmert who resigned as prime minister in a corruption scandal.

(Writing by Ori Lewis; Editing by Samia Nakhoul)