Ehud Olmert’s premiership was thrown into deeper crisis last night after his deputy demanded his resignation and positioned herself as the leading contender to replace him as Prime Minister of Israel.

Tzipi Livni’s decision to turn on her former ally from within the Cabinet – she sits at his right hand as Foreign Minister – made Mr Olmert’s already precarious position even less tenable. Her dramatic move transformed simmering dissent in Mr Olmert’s ruling Kadima Party into open revolt days after the scathing criticism of the official report into his Government’s handling of last summer’s Lebanon war.

It heightens the crisis at the very top of Israel’s political hierarchy, pitting Mr Olmert against Ms Livni in a contest that only one is likely to survive.

Mr Olmert plans to dismiss her over her remarks, the Prime Minister’s aides reportedly said. Ms Livni had said, after meeting Mr Olmert privately: “It’s not a personal matter between me and the Prime Minister – this issue is more important than both of us.”

Ms Livni’s strike could leave Mr Olmert fatally damaged, even if he punishes her with dismissal. Two of the coalition Government’s MPs have already resigned. including Avigdor Itzhaki, who head’s Kadima’s parliamentary bloc. Others may follow suit.

Recent polls suggest two thirds of Israelis would like Mr Olmert to resign immediately. Amir Peretz, his inexperienced Defence Minister, is also widely expected to go. However, even Mr Olmert’s harshest Kadima critics are reluctant to force elections, fearing that they would loose their own seats to Binyamin Netanyahu’s right-wing Likud Party, which is leading in the polls. Instead his Kadima opponents would prefer to switch leaders internally without triggering new elections.

Ms Livni positioned herself last night for just such a challenge. “I told him that resignation would be the right thing for him to do,” she said at a press conference in the Foreign Ministry. “I think that general elections would be a mistake. Israel needs stability. If the Prime Minister decides to resign, the Knesset can put together [another] Government,” she said.

Ms Livni seemed to indicate, however, that her immediate priority was to stabilise the Government before mounting a challenge. “Kadima needs to choose its leadership in a democratic manner, in a primary and, when the time comes, I plan to submit my candidacy,” she said. “Now is the time to restore the public’s trust in the Government.”

Moshe Negbi, an Israeli legal analyst, said that technically Mr Olmert could continue as Prime Minister until he chose to resign, since Kadima’s constitution provided no mechanism for replacing its party leader. Practically, if he lost his party, he would find it impossible to continue. “It will be unthinkable that he will carry on in that kind of scenario,” he said.

Mr Olmert appeared set to cling to power, however. Aides said that he told a private meeting of Kadima MPs last night: “I am in a personally uncomfortable position but I will not shirk my responsibility and will fix all the mistakes.”

It is the latest in a series of crises to affect the Israeli leadership. Days after founding Kadima, its father figure, Ariel Sharon, collapsed from a massive stroke and has been in a coma for the past 15 months.

Moshe Katsav, the Israeli President, is embroiled in a rape scandal. Haim Ramon, the former Justice Minister, faces jail after being convicted of kissing a woman soldier and Avraham Hirchson, the former Finance minister, was forced to step down because of a police investigation into fraud charges.

Amid all of this criticism, Israel gained support from an unexpected quarter when Hassan Nassrallah, the Hezbollah leader, gave grudging respect to his Zionist foe while continuing to claim victory in last summer’s war.

“It’s worth respecting when the enemy’s premier forms a commission to investigate the second [Lebanon] war, and it’s even more worth respecting when the commission assigned by Olmert convicts Olmert and uses harsh terms in describing his performance and behaviour during the war,” Nasrallah said in a speech in Beirut’s southern suburb.

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