JERUSALEM -- Israeli Prime Minister Ariel Sharon ended weeks of political bargaining Wednesday with an agreement establishing a coalition government dominated by fierce opponents of Palestinian statehood, clouding hopes for any peace initiative.
In a last-minute surprise, Sharon appeared to have sidelined Benjamin Netanyahu -- a former prime minister and rival in the Likud Party -- by offering him the less prestigious finance portfolio. Netanyahu had said he would only stay on as foreign minister and initially turned down the offer, but still could change his mind.
Sharon could present his Cabinet to parliament for approval as soon as today.
Sharon reached coalition deals with three parties in recent days, and on Wednesday signed "coalition guidelines" cementing the deal.
Sharon has already offered the foreign affairs portfolio to outgoing Finance Minister Silvan Shalom -- a 45-year-old Likud stalwart with little diplomatic experience and aspirations of succeeding Sharon.
Despite his hard-line record and his current tough military crackdown on the Palestinians, Sharon has promised to push for peace and offer "painful concessions" in his second term. But the makeup of Sharon's new team suggests he is not planning any major peace initiatives.
Defense Minister Shaul Mofaz kept his post in the new government. A proponent of the military crackdown on the Palestinians, Mofaz has said he would like to see Palestinian Yasser Arafat expelled.
Right-wing firebrand Tzahi Hanegbi was named internal security minister. In 1980, Hanegbi received a six-month suspended sentence for leading a chain-wielding attack on Arab students at Jerusalem's Hebrew University, where he was student union chairman. Hanegbi has since expressed regret.
Yisrael Katz, who is to become agriculture minister, was convicted in the same university attack.
In addition to Sharon's 40-seat Likud faction, most of whose members are hawkish, the coalition includes the six-seat National Religious Party, a patron of Jewish settlers in the West Bank and Gaza, and the seven-seat National Union, which has members who advocate pushing the Palestinians out of the West Bank.
The coalition also includes the moderate Shinui Party, giving it a comfortable majority of 68 in the 120-seat Knesset. Shinui supports peace efforts in principle, but its leaders say the issue is moot for now.
No more 'road map'
The coalition's guidelines are not expected to include acceptance of the so-called "road map" to peace put forth by the United States, European Union, United Nations and Russia, which calls for a Palestinian state and an end to Israeli settlement-building in the West Bank and Gaza.
"This means we don't have a road map any more," said Palestinian Cabinet minister Saeb Erekat. He said he hoped President Bush would "see the light" and press Israel for moderation.
Earlier this month, Arafat reluctantly agreed to create the position of prime minister, which would mean sharing some power for the first time in nearly four decades as Palestinian leader.
However, Arafat is widely expected to either delay naming a prime minister, limit his powers or appoint someone with little clout.
The prime minister's job will be defined by the 88-member Palestinian legislature.
In what seemed to be a challenge to Arafat, Parliament Speaker Ahmed Qureia said Wednesday the premier should have real powers, including authority to form a new Cabinet and set government guidelines -- tasks currently performed only by Arafat.
Sharon's office said he told President Bush on Wednesday that Israel was committed "to any road map that accurately reflects the president's vision of peace" -- a reference to Bush's speech last year in which he called for eventual Palestinian statehood, but also for a change in the Palestinian leadership.
Sharon has said he accepts Palestinian statehood in principle, but on far less land than the Palestinians seek, with severe limitations such as Israeli control of its borders, and only after the Palestinians replace Arafat as their leader.