The Israeli foreign minister, Tzipi Livni, today abandoned her efforts to form a government, putting Israel on course for early elections and dashing any remaining hopes of a peace deal with Palestinians before the end of the year.
Livni had been trying to secure a governing coalition since September when she was elected head of the ruling Kadima party to replace the prime minister, Ehud Olmert, who resigned his leadership this year amid a fraud investigation.
But partners in the current coalition, which took power in May 2006, used the changing of the guard to press new demands.
In a statement today, Livni said she was willing to make concessions but had to draw the line at "impossible" demands.
"When I had to decide between continued extortion and bringing forward elections, I preferred elections," she said.
"When it became clear that everyone and every party was exploiting the opportunity to make demands that were economically and diplomatically illegitimate, I decided to call off [talks] and go to elections."
She was due to formally convey her decision to the president, Shimon Peres, at a meeting that was brought forward to midday today.
Elections for the 120-seat parliament, which were scheduled for November 2010, are likely to take place in February or March.
In the meantime Olmert would continue as a lame-duck prime minister.
"It is not a happy announcement," Olmert said of Livni's decision, according to Reuters.
Technically, Peres could ask another politician to try to form a government before elections are forced. However, as leader of the largest party in parliament, Livni was the only candidate with a realistic chance of piecing together a coalition.
Opinion polls suggest that the former prime minister Benjamin Netanyahu, an opponent of wide-ranging territorial compromise, could win the election.
Early elections had appeared likely since Friday, when the ultra-Orthodox Shas party announced it would not join a Livni-led government.
Livni resisted Shas' demands that she refuse to negotiate a power-sharing arrangement with Palestinians for Jerusalem.
Palestinians are worried that an early election could put a year's worth of peace talks in limbo until the elections are held.
Livni has been Israel's chief peace negotiator with the Palestinians since talks were formally relaunched last November. The sides had hoped to reach a final peace accord by the end of the year, though both Olmert and the Palestinian president, Mahmoud Abbas, have said that target was unrealistic.
An aide to Abbas warned that the Israeli political turmoil could threaten peacemaking.
"Time is precious. The next few months will be wasted because of new elections and the US elections," Nabil Abu Rdeneh said.
The Hamas spokesman Sami Abu Zuhri said: "The call for early elections and Livni's failure to form a coalition government in Israel is a slap in the face to those who still dream of negotiations."