Foreign Minister Tzipi Livni came a step closer to becoming Israel's prime minister this week as both Labour and Shas expressed readiness to support the newly elected Kadima chair.

Ms Livni, who defeated her opponent Shaul Mofaz by 1.1 per cent in last week's vote, was deemed by President Shimon Peres this week as the Knesset member with the greatest chance of establishing a new government following Prime Minister Ehud Olmert's resignation on Sunday.

Mr Olmert stood up to his promise to resign following the Kadima primaries in light of corruption allegations against him. He will remain prime minister until the new government is formed. If Ms Livni fails to do this in the next 42 days, the country will head to elections within a further 90 days.

Labour leader and Defence Minister Ehud Barak met Ms Livni twice this week and said that his party was interested in remaining in the government. Mr Barak, political sources said, preferred a new government over elections since according to polls he will come in a distant third place behind Kadima and Likud.

"If we can have a true partnership it will be good, but if not, the Labour Party does not fear general elections," Mr Barak insisted at his party's headquarters in Tel Aviv. "Sitting in the government is not what we are after."

Shas Chairman Eli Yishai also met Ms Livni and reiterated his conditions for joining the government - an increase in child allowances and for the division of Jerusalem be taken off the negotiation table with the Palestinians.

Likud leader Binyamin Netanyahu, however, called for immediate elections.

"It can't be that such a small percentage of Kadima members will determine the future of millions of Israelis," Mr Netanyahu said. "The right and democratic thing to do is to set an agreed date for elections and to let the people decide who they want to lead."

Also this week, Ms Livni met chief Palestinian negotiator Ahmed Qureia and pledged to continue negotiations despite the political uncertainty in Israel.

"She stressed that she'll continue the peace process, and that if she forms the new Israeli government, there will be no conditions or obstacles to continue the peace process," Mr Qureia told AP.

Mr Mofaz, who had announced a retreat from politics, is scheduled to return to Kadima following Rosh Hashanah and is tipped as becoming foreign minister in place of Ms Livni.