Sharon pushes hard to draw Labour into unity coalition

Despite poll victory Likud leader says he will call new elections rather than form government with far-right parties

Ariel Sharon was pushing hard to get the defeated Labour Party to join his new coalition government yesterday, as it appeared that despite his overwhelming victory in the elections, he may be worse off than before Israel went to the polls – and could even end up having to form a government that could sour relations with the United States.

It may seem strange that Mr Sharon is so desperate to get the main opposition party he has just demolished at the ballot box to join his government. But he has to put together a coalition – under Israel's pure proportional representation system nobody has ever won an outright majority – and the other choices on offer are far from satisfactory.

Mr Sharon wants a rerun of the "national unity" government he headed until last autumn, in which Labour was the junior partner to his Likud party.

But this time Labour is refusing to join. Amram Mitzna – the leader who led Labour to its worst ever defeat on what was, in the current Israeli climate, a radically pro-peace agenda – is digging in his heels and insisting Labour will stay in opposition.

Two Israeli columnists from different papers wrote yesterday that Mr Sharon may have won a pyrrhic victory. Mr Sharon even devoted his victory speech on Tuesday night to trying to get Labour to join –some of his Likud supporters were less than happy when he told them it was not the time for celebrations after they had just won the elections.

He told Israeli journalists that he was not prepared even to consider the most likely alternative to Labour, a coalition with the far right, and is even hinting that he would rather call new elections.

Likud officials had been confidently predicting that Mr Mitzna's rivals in the Labour Party would quickly ditch him after he led them to defeat and then sign up for government. But senior figures in Labour – including those close to Mr Mitzna's rivals for the leadership – were saying yesterday that it was not going to happen. Many in Labour say the best place for the party to recover from its electoral drubbing is in opposition – partly because they think Labour lost so badly because it could not present itself as an alternative to a government in which it served for most of the past two years.

What makes Mr Sharon's task really difficult is that the party which came third, the radically secularist Shinui, has vowed it will not serve in a coalition alongside the ultra-Orthodox parties it campaigned against so successfully. The Shinui leader, Tommy Lapid, said he was sticking to that, which means the chances are that of all the possible permutations, the only ones that Shinui will agree to would include Labour.

That would leave Mr Sharon facing a narrow right-wing coalition, which could seriously compromise relations with the Bush administration. The far-right National Union has made it clear that it will fiercely oppose any move towards a Palestinian state, which George Bush has called for as part of a peace plan.

Mr Sharon may be able to avoid the National Union's presence if he can get the small One Nation party, which campaigned on the economic crisis, to join a right-wing coalition, but that is far from clear.

His success has largely come from the fact that he has succeeded in portraying himself in Israel as a moderate in the conflict with the Palestinians; whether he is really one at heart is another issue. He wants to be seen, abroad as well as at home, as the statesman in the centre, moderating between the Labour left and the more right-wing figures in his own party, such as Binyamin Netanyahu.

Another reason that Mr Sharon is so desperate to avoid a coalition with the far right is the desperate state of the Israeli economy, ravaged by two years of violence. Mr Sharon's tough military response to the Palestinian intifada has been costly, and the tourism industry is in ruins.

The way out is an extra $12bn (£7.3bn) of aid that Israel is seeking from the United States – $4bn in direct aid, $8bn in loan guarantees – on top of the $3bn it already receives annually. The US is considering the request. It is not a good time for relations with President Bush to turn sour. A further difficulty for Mr Sharon is that a coalition dependent on the far right and ultra-Orthodox parties, which would be liable to leave when their own narrow interests were threatened, would not be very stable.

Mr Sharon has six weeks to put together a government, and he has not given up on Labour yet. It is far from certain that Mr Mitzna will be allowed to remain leader. Meanwhile, many in Likud are pinning their hopes on a war with Iraq changing the situation enough for Labour to join.