In coalition talks on Sunday, Ehud Olmert, the prime minister, named Peretz as defence chief, Labour officials said.
Efraim Sneh, a Labour member of parliament, told Israel Radio: "We have received the most important portfolio from a security and political standpoint."
Israeli newspapers and radio stations said Olmert hopes to wrap up coalition talks by early May and plans to put together a government of up to 28 cabinet ministers from six political parties, controlling 84 of parliament's 120 seats.
By joining a Kadima-led government, Peretz and Labour would be obliged to support the proposal.
Labour finished second to Olmert's centrist Kadima Party in Israel's March 28 election and its support is crucial to his efforts to form a broad coalition.
In the absence of making peace with the Palestinians, Olmert has said his government will set borders unilaterally by removing isolated Jewish settlements in the West Bank and strengthening other enclaves in the occupied territory.
Palestinians say Olmert's "convergence plan" would deprive them of a viable state.
Partnership with Palestinians
But Zeev Schiff, a military affairs commentator, said in the Haaretz newspaper that as defence minister, Peretz would "work for partnership" with Mahmoud Abbas if the Palestinian president showed "real willingness for real agreements" with Israel.
Peretz met Abbas last month, issuing a call "to strengthen the momentum between our two sides that believe in peace".
Shaul Mofaz (R), was offered
another cabinet post
Mofaz, a veteran general, is seen as the architect of a policy of assassinating Palestinian resistance leaders.
As defence chief, he oversaw a series of military raids in the West Bank, many in response to bombings in Israel, as well as a troop and settler pullout from the Gaza Strip last year.
Following in the footsteps of Ariel Sharon, the former prime minister incapacitated by stroke in January, he defected in December from the Likud party to Kadima.
Peretz has no senior command-level military experience.
Olmert and Mofaz met on Sunday and media reports said he offered the defence minister a cabinet post. The reports did not name the portfolio.