Berlusconi, his popularity sagging amid concerns about the economy and opposition to Italy's involvement in Iraq, stepped down on Wednesday but said he was determined to regain the country's confidence with a new cabinet.

President Carlo Azeglio Ciampi has two options: to dissolve parliament and call early elections, or to designate a premier to assemble a new government. He is widely expected to tap Berlusconi to form a new cabinet to serve until the end of the legislature in mid-2006.

However, while Berlusconi appeared certain on Wednesday that he had the necessary support, Italian commentators said that putting together a new cabinet might prove a tough balancing act with a coalition that has been fractious recently.

"Berlusconi needs to be the great mediator he has rarely been in the past," the Italian financial daily Il Sole 24 Ore wrote on Thursday.

Faltering coalitions

Berlusconi met with the leader of a small centrist party, the Union of Christian Democrats, or UDC, which withdrew from the cabinet last week, the Ansa news agency reported.

Resigning and then immediately shuffling the government is an old trick of Italy's complicated political system and has been used by premiers to strengthen faltering coalitions.

President Ciampi may again ask
Berlusconi to form a government

Berlusconi, who was elected in 2001 and had been leading Italy's longest-serving postwar government, had resisted the move, sensing it would undermine his image as a new-style politician.

On Wednesday, he suggested he would have preferred to stay.

"One can't always get what one wants," Berlusconi said, acknowledging the end of his ambition to lead Italy's first postwar government to serve an entire five-year term.

The move was welcomed by allies, who demanded that Berlusconi step down and revamp his cabinet after  an embarrassing defeat in April 3-4 regional elections held across Italy.

Contentious point

Berlusconi is staying on as caretaker, and the Apcom news agency quoted him as saying that he expects the crisis to be over by the end of the week. He reportedly said he would not change many ministers but did not give details.

"One can't always get what one wants"

Silvio Berlusconi,
ex-Prime Minister

One contentious point is the ministry of reforms. The post has been held by the Northern League, which has pushed a massive constitutional reform to delegate more powers to Italy's regions. The bill is awaiting parliamentary approval.

Two other coalition partners, the UDC and the right-wing National Alliance, have been sceptical of the reform and have long complained about Berlusconi's closeness to the league.

In Wednesday's address to the Senate, Berlusconi appeared to appease some requests from the two parties when he said the new platform would focus on aiding Italy's underdeveloped south and financially pressed families.

Concerns

Ex-premier Romano Prodi is also
in the running for his old job

The economy is high on the list of worries. Italy's economy grew by 1.2% last year compared with an average 2% in the 12-nation euro zone, raising pressure on the government to contain its growing deficit under European Union rules.

The centre-left opposition has been pressing for early elections, emboldened by polls suggesting they could win.

In tune with most Italians, the centre-left was against Berlusconi's decision to send 3000 troops to Iraq after the ouster of Saddam Hussein.

Pressure to pull out the troops mounted after the 4 March killing in Baghdad of an Italian intelligence agent who was escorting a released hostage.

The agent was shot by US troops.