The office of Israeli Prime Minister Ehud Olmert says Labor Party leader Amir Peretz has agreed to remain in the Cabinet despite Mr. Olmert's decision to include an ultranationalist party in the ruling coalition.

Mr. Olmert's office announced Wednesday, that Peretz's left-center party has agreed to an expanded coalition that includes far-right leader Avigdor Lieberman and his Yisrael Beitenu (Israel Our Home) party.

Peretz had said he would not announce a decision until Labor's central committee meets on Sunday.

The Labor Party has been divided over accepting Lieberman as a coalition partner. Some party members voice concern over what they say are his extreme anti-Arab views. Other Labor ministers favor staying in the coalition to maintain political stability.

The prime minister's office says Peretz was assured there will be no change in the government's guidelines and that his role as defense minister will not be harmed.

Lieberman's party calls for annexing Israeli settlements in the West Bank and excluding Israeli Arab towns from Israel's final borders. Labor objects to stripping Israeli Arabs of their citizenship.

Under the coalition deal withi Mr. Olmert, Lieberman would become a deputy prime minister in charge of monitoring strategic threats facing Israel. Lieberman says he would focus on Iran, which he calls the primary threat.

The addition of Lieberman's party would expand the ruling coalition from 67 to 78 seats in the Israeli parliament. His party is mostly made up of Russian immigrants.

Some information for this report was provided by AFP.