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A right-wing Israeli party leader yesterday called for the execution of Israeli Arab politicians who had had contacts with Hamas or failed to celebrate the state's independence day, overshadowing the swearing-in of the new coalition government.

Avigdor Lieberman, leader of the mainly Russian immigrant party Yisrael Beieinu, told the Israeli parliament that Arab members who met with Hamas should be tried for "co-operating with the enemy".

Mr Lieberman, who failed to reach a deal to join the new coalition government of Ehud Olmert which was sworn in yesterday, declared: "The Second World War ended with the Nuremberg trials and the execution of the Nazi leadership. Not only them, but also those who collaborated with them. I hope that will also be the fate of the collaborators in this house."

Outraged Arab Knesset members warned that the comments of Mr Lieberman, whose party was one of the surprise successes of the March elections, securing 12 seats, would lead to violence against Arab citizens of Israel. "You are a racist," the Labour member Raleb Majadele told the Moldova-born party leader. "You do not accept the decisions of the nation. You are two-faced."

The exchanges cast a shadow over a session of the Knesset in which the new Prime Minister, Ehud Olmert, sealed the formation of his Kadima-led coalition with Labour, the ultra-orthodox party Shas, and the new Pensioners' Party.

Mr Olmert restated his plan to move tens of thousands of Jewish West Bank settlers to settlement blocks in most cases nearer to - but still on the other side of - the 1967 eastern border of Israel; blocks which he intends to annex under the "convergence plan" which was at the centre of his election campaign.

Warning that the maintenance of settlements throughout the West Bank "creates an intermingling of populations which is impossible to separate, and which endangers the state of Israel as a Jewish state", Mr Olmert made clear his determination to establish borders for Israel which would ensure a Jewish majority. Mr Olmert said: "The achievements of the settlement movement in main concentrations will forever be an integral part of the sovereign state of Israel."

Mr Olmert cannot yet be sure of commanding a Knesset majority in favour of his proposal, and Shas entered the coalition without signing up to the ideal of unilateral "disengagement" which Mr Olmert has said will happen if he cannot negotiate it with the Palestinian leadership.

* A Palestinian taxi driver, Zakhariah Daragmeh, 37, was shot and killed by Israeli troops after he advanced towards a checkpoint near Nablus to pick up passengers. The army was reported to have designated the area where he was shot a prohibited zone.

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