The Prime Minister asked President Katsav to dissolve the Knesset in a push for a poll early next year when Mr Sharon will head a new “National Responsibility” party contesting the centre ground.

Mr Sharon said last night that he had taken the decision because life inside Likud, which he helped to found more than three decades ago, had become “insufferable”.

“The Likud in its present configuration cannot lead the nation to its goals,” the 77-year-old former general said. “I founded the Likud to give Israel hope. Unfortunately, this is no longer there.”

He said that one of his main goals was to “lay the foundations for a peace settlement in which the state’s permanent borders will be set”, and hinted that this could ultimately mean the removal of further Jewish settlements in the West Bank.

Even though Mr Sharon remains Israel’s most popular politician, the dramatic strategy is fraught with danger. Some analysts say he could be prime minister for the next four years — or consigned to the political graveyard.

Senior figures immediately began jockeying for position in what seems likely to be the most dramatic realignment of the Israeli political landscape in decades.

Advisers close to Mr Sharon said that the constraints imposed upon him by Likud hardliners — who had opposed the withdrawal of Israeli settlers from Gaza in August — made it impossible for him to press ahead with peace-making initiatives that he believed were vital to guarantee Israel’s future.

The decision of Labour — under the newly reinvigorated leadership of the firebrand trade unionist Amir Peretz, 53 — to quit the ruling coalition and rob it of a majority, was the tipping point. Mr Peretz vowed to shift the political focus from security to economic and social issues. However, with the realignment signalled by Mr Sharon, voters in the election likely to take place in late February or early March have been offered a third choice: pitting Mr Sharon’s party against Labour and Likud. The right-wing rump of the Likud party — with the former Prime Minister and Sharon foe, Binyamin Netanyahu, favourite to take the helm — will probably stand fast against territorial concessions to the Palestinians.

Mr Sharon set the day’s dramatic events in motion with an early morning visit to President Katsav, who said that he would weigh the dissolution request carefully but act swiftly to reduce the risk of political instability. The President can allow up to 21 days for a new coalition to emerge, but once the Knesset is dissolved, the poll must be held in 90 days.

Soon after, Mr Sharon met 11 Likud members who are expected to form the core to his new party along with other Knesset legislators from Labour and the secular Shinui party. After sending his resignation letter to the Likud leadership, Mr Sharon last night unveiled his National Responsibility party in a televised press conference.

Opinion polls predict that the new party led by Mr Sharon, who will remain as caretaker Prime Minister, could garner 28 of the Knesset’s 120 seats. Labour is forecast to match that, paving the way for a strong coalition with Mr Sharon and other parties, a prospect that had liberal commentators full of hope.

Breakaway parties in Israel have a dismal electoral record, but none has been led by an incumbent Prime Minister, and few have commanded the respect enjoyed by Mr Sharon.

Yaron Ezrahi, Professor of Political Science at Hebrew University in Jerusalem, said: “He [Sharon] wanted to create the conditions to allow him to finish the job of moving faster and closer to finalising Israel’s borders.” Few doubt the gamble so late in life is anything but an attempt to guarantee his legacy and go down in history as the man who resolved the strife in the Middle East.

Palestinian leaders watched the developments intently. Saeb Erekat, the Palestinians’ chief negotiator, said: “I’ve never seen anything of this significance. I hope that, when the dust settles, we will have a partner in Israel to go . . . toward a final agreement.”

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