Jerusalem: Dimming chances for peace, Israeli Prime Minister Ariel Sharon's Likud party has formed a coalition government with two Right-wing parties opposed to statehood for Palestine and sidelined long-time party rival Benjamin Netanyahu by moving him from Foreign Ministry to the Finance portfolio.

In a surprise move, Sharon switched the Foreign Minister's post with lesser known Finance Minister Silvan Shalom. Netanyahu initially refused the offer but later accepted it, after reaching an understanding with Sharon on February 26 night about expanded powers that he would enjoy as Finance Minister, sources said.

Sharon now enjoys an eight-seat majority in the 120-member Knesset after agreements for the coalition that would include Centrist-secular Shinui party besides right- winger National Religious Party (NRP) and the ultra-nationalist National Union Party (NUP).

Observers say the nature of coalition with Right-wing parties may prove a setback for peace efforts in the region, as the NRP and NUP are strongly opposed to the creation of a Palestinian state, which Sharon has supported in principle by endorsing an American ''road map'' for peace that called for an independent Palestine by the year 2005.

Later on February 27, Sharon will present his new government to the Knesset (Parliament) along with coalition guidelines and announce the allocation of portfolios.

Sources said Netanyahu, Former Prime Minister, would also chair the Ministerial Cabinet on social and economic affairs, a role held by the Prime Minister until now and will also get the government corporation authority from the Prime Minister's Office.

Sharon had made Netanyahu his Foreign Minister in November 2002, apparently hoping to curb any opposition to his leadership, but Netanyahu had still challenged him for the Likud leadership the following month but lost the post.

The four parties comprising the coalition – Likud, Shinui, the National Religious Party and National Union – have formally signed the coalition agreements and the coalition guidelines listing security and regional stability as the government's top priorities.

According to Israeli Law, the coalition agreements must be submitted to the Knesset for the parliamentarians' perusal at least 24 hours before the new government is sworn in.

PTI