The most controversial appointment is that of Amir Peretz, the Labour Party leader and former trade unionist, as Minister of Defence. He has no military experience. Although Mr Peretz wanted the finance portfolio to advance his socialist poverty-reduction agenda, Mr Olmert was wary of alarming the financial markets with a left-winger.

But with Labour bringing 20 seats to the ruling coalition, compared with Kadima’s 29, Moroccan-born Mr Peretz, 53, was in a strong position to demand a senior job.

Mr Olmert named Tzipi Livni, Israel’s most prominent woman politician, as Vice-Premier and Foreign Minister.

The Kadima (Forward) party that he formed with his now-incapacitated predecessor, Ariel Sharon, will control 67 seats in the 120-seat Israeli parliament. The coalition includes centre-left Labour, ultra-religious Shas and the Pensioners’ Party.

The centrepiece of Mr Olmert’s policies is withdrawal from some isolated West Bank settlements, removing up to 60,000 settlers while completing Israel’s West Bank barricade.

Yesterday, in the West Bank town of Tulkarem, Israeli soldiers shot and killed Etaf Zalat, a Palestinian mother, while trying to arrest an Islamic Jihad militant who they say was hiding in her home.

Soldiers claim that they fired at the house when they saw suspicious movement, killing the 41-year-old woman and wounding her two daughters. The army said that it was investigating the shooting.

Other members of Mr Olmert’s new government include his long-term associate Avraham Hirchson as Finance Minister and Meir Sheetrit as Housing and Construction Minister. Both are members of Kadima.

Avi Dichter, a former head of Shin Bet, the internal security service, is to become Public Security Minister and Haim Ramon, who defected to Kadima from Labour, will be Justice Minister.

Shaul Mofaz, the hawkish former general who served under Mr Sharon at Defence, is now tipped to be Transport Minister.

Labour will get six other ministries, including education, infrastructure, agriculture and tourism. Shas will have about four and the Pensioners will have two.

Shimon Peres, Israel’s elder statesman, was put in charge of developing the Negev and Galilee and given the courtesy title of Deputy Prime Minister, junior to Mrs Livni.

To the relief of Israel’s 20 per cent Arab minority the right-wing Yisrael Beitenu Party announced yesterday that it would not join the coalition. Its founder, Avigdor Lieberman, a Jewish settler, favours transferring hundreds of thousands of Arabs into the West Bank.

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