Israeli Prime Minister Ariel Sharon has reorganized his cabinet, removing his long-time rival Benjamin Netanyahu from the Foreign Ministry.
In a surprise move, Mr. Sharon offered the Foreign Ministry post to Silvan Shalom, who accepted the job.
Mr. Netanyahu turned down an offer from the prime minister to replace Mr. Shalom in the finance ministry.
In his discussions with Mr. Sharon, Mr. Netanyahu made it clear he was only prepared to serve as Foreign Minister.
Mr. Netanyahu was given the portfolio last year, shortly before he unsuccessfully challenged Mr. Sharon for the leadership of the Likud Party.
His departure from the Foreign Ministry could affect government policy towards the Palestinians.
Before last month's elections, Mr. Netanyahu said he wanted to send Palestinian leader Yasser Arafat into exile. He also voiced his strong opposition to the establishment of a Palestinian state.
Mr. Shalom's views on such issues are yet to be clarified. But he is known as a strong Sharon loyalist. Mr. Shalom is therefore expected to back the prime minister's policy of supporting the establishment of a Palestinian state, as part of a negotiated peace settlement.
If Mr. Netanyahu remains steadfast in his refusal to switch portfolios, he is likely to find himself out of the cabinet.
The former mayor of Jerusalem, Ehud Olmert, has been selected by Mr. Sharon to take over the Finance Ministry, if Mr. Netanyahu does not have a change of heart.
Meanwhile, Mr. Sharon celebrated his 75th birthday with goodwill messages from world leaders, including U.S. President George W. Bush.
Mr. Sharon's new cabinet includes the leader of the centrist and secular Shinui Party, Tommy Lapid, who has been appointed justice minister. Shinui is the second-largest party in the new ruling coalition.
At the same time, Mr. Sharon kept to his pledge to retain Shaul Mofaz, a former head of the Israeli Army, as defense minister.