Israel's ultra-Orthodox Shas party says it will not join a coalition government led by Prime Minister-designate Tzipi Livni, increasing the chances of snap elections.
A Shas spokesman says the party was unable to reach an agreement with Livni's centrist Kadima party on the status of Jerusalem and social welfare benefits for the poor. He says his party's spiritual leader Rabbi Ovadia Yosef, who helps determine party policy, decided not to continue coalition talks.
Livni said Thursday she would call for elections if she had not formed a new coalition government by Sunday.
She had reached a deal with the dovish Labor party, but had been unable to strike an agreement to keep the Shas party on board, a move many observers said was key.
On Monday, President Shimon Peres granted Livni's request for a two-week extension to negotiate a deal that would keep the existing ruling coalition intact.
Polls indicate that if early elections are held, then Kadima would likely lose out to the hard-line Likud party, denying Livni the chance to become Israel's first female prime minister in more than 30 years.
Livni took over as the leader of Kadima in September after Prime Minister Ehud Olmert stepped down in a corruption scandal. But Olmert remains as caretaker prime minister until a new government is formed.
Some information for this report was provided by AFP, AP and Reuters.