Sharon signs up far right but edges out Netanyahu

Ariel Sharon finished putting his coalition government together yesterday by signing up a far-right party with views even more extreme than those that have already joined.

What is left of a peace process between Israel and the Palestinians looked in trouble after the National Union joined the government. Some of the party's members have called for Palestinians to be forcibly expelled from the West Bank.

And it appeared that Mr Sharon may have succeeded in manoeuvring his arch-rival for the leadership of his own Likud party, the former prime minister Binyamin Netanyahu, out of the government altogether.

Mr Sharon took away Mr Netanyahu's job as Foreign Minister and offered him the less glamorous posting of Finance Minister. Mr Netanyahu at first rejected the offer but yesterday evening he was said to be reconsidering with his advisers.

The Prime Minister was expected to present his new government to the Knesset, Israel's parliament, today. With the addition of the National Union to his coalition, Mr Sharon will command 68 of the 120 seats – which should be a sufficient majority to push through most of his government's policies.

The question is what those policies will be. George Bush has called for a "two-state solution", a peace deal that would include the formation of a Palestinian state in part of the occupied territories. Mr Sharon says he is committed to President Bush's "vision" and will pursue it in this government.

But the government will now contain two parties whose most fundamental ideology opposes any Palestinian state in the occupied territories, which they want as Israeli land.

The National Union and the National Religious Party, which joined the coalition at the weekend, sent letters to Mr Sharon before they agreed to join the coalition placing it on record that they would oppose a Palestinian state in government. The National Union extracted a promise from Mr Sharon that he would not press ahead with any peace deal without a new government decision.

Mr Sharon offered Mr Netanyahu's job as Foreign Minister to Silvan Shalom, the outgoing Finance Minister, completing a personal triumph over Mr Netanyahu, which began when he trounced him for the leadership of the Likud party last year and continued with the huge election victory under Mr Sharon's leadership.

Mr Netanyahu had said that the only job he would accept was that of Foreign Minister. But with the economy in crisis and measures to rescue it at the top of the new government's agenda, turning down the treasury might hurt Mr Netanyahu.

The move also allowed the Prime Minister to head off a rebellion from Mr Shalom, whom he wanted out of the treasury job. Mr Shalom was said to be unhappy with anything but a senior ministerial portfolio, and had threatened to work to bring Mr Sharon down from within the Likud party.