JERUSALEM, Nov 10: Shimon Peres was ousted as Israel’s Labour Party leader on Thursday in an upset victory for a trade union chief who vowed to end a ruling alliance with Prime Minister Ariel Sharon and usher in early elections.

Amir Peretz, 53, who becomes Labour’s candidate for prime minister, said he would meet Sharon to discuss a date for an early national ballot, advancing an election not due until November 2006. Israel Radio said the talks were set for Sunday.

Largely unknown on the international stage, Peretz was declared the winner of a rank-and-file ballot by a 42 to 40 per cent margin over Peres, Labour’s elder statesman who has won a Nobel Peace Prize but never a general election.

Peretz’s victory appeared to reflect support for his call for a return to centre-left Labour’s socialist roots and anger at Peres, 82, for failing to revive Israel’s once-dominant party after its crushing defeat in the 2003 general election.

“I expected a better evening,” a glum Peres told a news conference, clearly stunned by what commentators called an upheaval in Israeli politics.

Polls had predicted that Peres, an architect of now-tattered peace deals with the Palestinians, would coast to victory.

Political disarray in Israel is expected to keep diplomacy with the Palestinians, already on hold after a surge of violence following Israel’s Gaza pullout, in a deep freeze for now.

Amid chants of ‘the next prime minister’ from supporters, Peretz, head of Israel’s Histadrut trade union federation, said: “This can truly be Israel’s most important hour.”

Peretz pledged to pull the party out of Sharon’s coalition over free-market reforms and spending cuts he said have worsened the plight of Israel’s poor.

Sharon has relied on Labour’s parliamentary support to prop up his government, already shaky because of divisions in his rightist Likud over Israel’s Gaza withdrawal in September.

Gideon Saar, parliamentary whip for Sharon’s rightist Likud, called Peretz ‘irresponsible, very extreme’.

Finance Minister Ehud Olmert said an effort would be made to convince Labour to stay in government. But Likud officials prepared to discuss moving up the party’s leadership primary.

Peretz’s win pushed down the Israeli shekel and Tel Aviv stocks in Thursday trading. Trying to calm nervous financial markets and appeal to mainstream Israelis, Peretz declared: “I don’t intend to hurt the free market or competition.”

He promised, however, to champion the poor, the working class and pensioners.

“Labour can only become an alternative if it returns to itself,” he said in Jerusalem. “I won’t let the prime minister cover us in warm embraces.”

But Labour, the party that founded the Jewish state in 1948 and later became the standard-bearer for peacemaking, is now weaker than ever as voters hardened by a five-year Palestinian uprising have abandoned it for Sharon’s tough military approach.

Peres, a long-time personal friend of Sharon despite political differences, had made clear he wanted to keep the coalition intact even as the prime minister faced rebellious Likud lawmakers trying to punish him for the Gaza withdrawal.

Peres took Labour into Sharon’s government last year as junior partner to help carry out Israel’s first removal of settlements from occupied land Palestinians want for a state.

Twice prime minister — in a power-sharing deal in the 1980s and as successor to the slain Yitzhak Rabin in 1995 — Peres has lost in five attempts at winning a general election outright.

His latest defeat could spell the end of a six-decade political career. He challenged the results, alleging voting irregularities, but party officials rejected the accusation.

“I have nothing to be ashamed of,” Peres told reporters even as he avoided conceding defeat.

Peretz shares many of Peres’s dovish views, but his socio-economic platform seemed to resonate strongest with Labour members who believe the government’s economic policies have gone too far in widening the gap between rich and poor.—Reuters