New cabinet ministers were sworn in after Knesset lawmakers voted 58-56 in favour of the alliance between Sharon's Likud party, opposition Labour and a religious faction, United Torah Judaism. Six Knesset members abstained.
The "national unity" coalition gives back to Sharon the parliamentary majority he lost six months ago over far-right opposition in his cabinet to the plan to remove all 21 illegal settlements in Gaza and four of 120 in the West Bank this year.
But Sharon's tiny margin of victory - at least 12 members of his own party voted against the new government - signalled more battles ahead over plans to remove colonists from settlements in the occupied Gaza Strip.
Likud members who voted against the coalition were off-set by left-wing opposition legislators who support the pullout plan.
"You, Mr Sharon, are the first prime minister in history, who will be empowered to carry out his most important plan by the opposition, and contrary to the will of some in the government," opposition leader Yosef Lapid said before the vote.
The international community has welcomed Sharon's "disengagement plan" as a chance to break a bloody four-year diplomatic deadlock with the Palestinians, although many foreign leaders have called for more comprehensive withdrawals.