JERUSALEM, (Reuters) – Israel came a step closer to early parliamentary elections on Friday when the ultra-orthodox Shas party announced it would not join a coalition led by Israeli premier-designate Tzipi Livni.

Livni, Israel’s foreign minister under outgoing premier Ehud Olmert, has secured a pledge of support from the powerful Labour party, but without Shas they would be short of a majority.

Both major parties say now is not the time to burden the country with elections. The right-wing Likud party, however, is ahead in the polls and favours a national ballot.

With coalition negotiations dragging on, Livni had set a Sunday deadline for a coalition deal with Shas. But just as she did so, Shas spokesman Roy Lachmanovich on Friday released a statement saying there was no agreement with Livni’s Kadima party over two main issues — the status of Jerusalem and social welfare benefits for the poor.

“Shas has asked only for two things … real financial help for the (financially) weak in Israeli society and and protection for Jerusalem … which is not merchandise for sale,” he said.

Lachamnovich said that as a result, the party’s spiritual leader, Rabbi Ovadia Yosef, who heads a group of sages who determine party policy, decided not to continue coalition talks.

The division of Jerusalem, which both Israel and the Palestinians claim as their capital, is a key issue in talks to end the intractable Middle East conflict. Shas totally opposes any concessions on Jerusalem land.

Livni has been trying to forge political partnerships since she was elected leader of the centrist Kadima party last month, taking over from Olmert who resigned as prime minister in a corruption scandal.

The collapse of coalition talks means the Olmert will carry on as caretaker prime minister until a viable governing partnership is forged or new elections are held.

Political commentators did not rule out the possibility that Livni could still form a minority coalition relying on the unofficial support of smaller partries.