The embattled premier Monday said that his controversial realignment plan - under which Israel planned to withdraw from large swathes of the occupied West Bank - was no longer a priority.
The announcement effectively stripped Olmert's coalition of its raison d'etre, as the March 28 parliamentary election that his centrist Kadima won was a de facto referendum on the realignment plan.
"A government that concedes its diplomatic horizon is a government with no future," coalition partner and defense minister Amir Peretz was quoted by local media as telling aides.
Olmert's relations with Peretz's Labor party were already tense because of disagreements over what type of inquiry should investigate the conduct of the Lebanon war and the 2007 budget.
On Tuesday Olmert received yet another blow, a non-binding vote by the defense and foreign affairs committee backing the creation of a powerful state commission into the Lebanon war, instead of a limited government inquiry called for by the premier.
After reports of the vote, Olmert canceled a government meeting scheduled for Wednesday, during which the cabinet was to vote on whether to support Olmert's call for a three-pronged government inquiry.
Faced with the cracks within his shaky coalition, calls to step down over the Lebanon war, and absence of a solid political platform, Olmert, considered one of Israel's most skillful politicians, has turned his focus to reviving the dormant peace process with the Palestinians.
On the same day that he announced that the West Bank pullout had been put on hold, Olmert said that he was ready for dialogue with Palestinian President Mahmoud Abbas, whom he last met in an informal setting in Jordan June 23.
"I want and intend to hold a dialogue with Abu Mazen," said Olmert, calling Abbas by his widely-used moniker. "We have No Problem that is more urgent than the Palestinian problem," he said.
On Tuesday Deputy Prime Minister Shimon Peres followed up, saying that Olmert would invite Abbas to a meeting within days.
"We have to call on Abu Mazen to meet and in my opinion the prime minister will do so in the coming days," Peres told army radio. "We have to conduct negotiations on the basis of the road map," Peres said, referring to the framework for Middle East peace that was launched by the international community in 2003 but has made next to no progress since then.
The road map drafted by the European Union, Russia, the United Nations, and the United States outlined steps toward establishing a viable Palestinian state living in peace alongside Israel by 2005.
But Peres said that talks could not begin before the release of an Israeli soldier seized in a June 25 cross-border raid by Gaza militants, including the armed wing of the Palestinian ruling Islamist Hamas movement.
"As soon as the issue of our kidnapped soldier is resolved, and I hope that it will be, that is what he will do," Peres said.
Although Israel has demanded an unconditional release of Corporal Gilad Shalit, local media have reported that under an imminent deal brokered in secret talks with Egyptian mediators, Israel would release hundreds of Palestinian prisoners in exchange for the soldier.
© 2006 Agence France-Presse
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