Shas, an ultra-religious Jewish party, agreed a coalition deal with Olmert's centrist Kadima. Shas' ruling rabbis approved the deal at a late-night meeting, a party spokesman said.

With Shas on board, Olmert controls 67 of parliament's 120 seats, a majority crucial to pushing through a plan to withdraw from isolated Jewish settlements in the occupied West Bank in the absence of peace talks with the Palestinians.

However, it was unclear whether Shas would lend its support to the plan. It's voters tend to be hawkish and the party opposed last year's Israeli withdrawal from the Gaza Strip.

Israeli media reports earlier said that Shas stands to get three cabinet ministries. Kadima also pledged to increase child allowances - an issue popular with Shas supporters.

Olmert's Kadima party, which won the most seats in elections on March 28 but not a majority, has already signed up the centre-left Labour party and the pensioners' party Gil.

Israel Radio said Olmert was continuing negotiations with the doveish Meretz party and a secong religious party. 

The ultranationalist Yisrael Beiteinu has also said it was open to coalition talks.

Labour has been allotted seven ministries in an action ratified by the party's central committee on Sunday.