Israeli Prime Minister Ariel Sharon has signed an agreement with the centrist Shinui Party that paves the way for the creation of a new government, almost one month after national elections.

The deal with Shinui comes a day after the National Religious Party joined the coalition.

Even though Shinui, the third-largest party in parliament, wants to see the influence of the religious establishment reigned in, its leaders have also said it is possible to form a working relationship with the NRP. The party is the most mainstream of Israel's religious parties. Still, it supports the expansion of Jewish settlements and opposes the creation of a Palestinian state.

Analysts here say the makeup of this new government does not bode well for the peace process.

"Well, the new Israeli government is a hardliner government, and from the point of view of peace lovers, I don't think it's a good message," said Danny Rubinstein, a columnist for Ha'aretz newspaper. "But you know, we are in bad shape in our relations with the Palestinians, so it doesn't change a lot, and we don't see any light at the end of the tunnel, unfortunately."

Mr. Rubinstein said the right-leaning nature of this new government, as it now stands, may seem a surprise, since the major partner, Shinui, includes many moderate components.

However, its leader, Tommy Lapid, has priorities other than making peace with the Palestinians. In particular, he wants parliament to rescind laws that give orthodox Jews special privileges, including an exemption from army service. At the same time, he may be a moderating influence on the Palestinian issue, as he claims his party is more liberal than Prime Minister Sharon's Likud, but not as liberal as Likud's chief rival, Labor.

Even though Mr. Sharon has agreements with enough partners to form a government that controls 61 seats in the 120-member parliament, there are indications that the coalition-building process is not over yet.

Columnist Danny Rubinstein says he believes there is even an outside chance that Labor may still be persuaded to join the government. "There's a lot of pressure from outside. We face now a terrible economic crisis, and we need, desperately, the American loan guarantees, and the only way to pursue [them] is to convince the American administration that it will not be a hardliner government. That's why Sharon needs the Labor Party in the Cabinet, not because he likes the Labor Party, but because he [needs to] creates the sort of image of a moderate and reasonable leader," he said.

Whether Labor can be convinced to join Mr. Sharon remains to be seen.

Labor favors an immediate resumption of negotiations with the Palestinians and the dismantling of some Jewish settlements, policies sharply opposed by Mr. Sharon.

The Labor Party leader, Amram Mitzna, has repeatedly said his party wants to fulfill the role of opposition, and therefore, he will not join the government.

Despite such public statements he met twice with Prime Minister Sharon over the weekend, exploring that very possibility.