Netanyahu resigns over Gaza pullout

Supporters and opponents of the disengagement agreed, however, that the gesture would not stop the withdrawal. Mr Sharon promised the cabinet that it would go ahead on schedule. Mr Netanyahu acknowledged that the Prime Minister still enjoyed an "automatic majority" in both the government and the parliament.

But he contended: "This is not the government that I joined. It contradicts the principles of the Likud and the principles on which we were elected."

Mr Netanyahu, Mr Sharon's main rival to lead the right-wing Likud party, said: "I cannot be a partner in a step which I believe will lead to the establishment of an Islamic state that will endanger the state of Israel. I cannot be a partner to a step that endangers our security, that divides the people, and that will lead us back to the 1967 borders, which are not defensible."

Gaza, he predicted, would become a base for terrorism. "Hamas is gaining in strength. It is winning credit for what is presented as our retreat under terrorist fire. Abu Ala, the Palestinian Prime Minister, says that this evacuation is only the first stage, and that after that they�ll reach Jerusalem. Other terrorist elements say it�s a step on the way to the liberation of the whole of Palestine."

Four other hardline Likud ministers also voted yesterday against the first phase of the evacuation from three isolated settlements - Netzarim, Kfar Darom and Morag - but none of them resigned.

Israeli commentators viewed the resignation as the first shot in a battle for the party leadership and for its identity. At 56, Mr Netanyahu is 20 years younger than Mr Sharon. Yesterday he positioned himself as the spokesman for the nationalist values of the party's founding father, Menachem Begin. But the settlers have not forgotten that Mr Netanyahu was the first right-wing Premier to cede land to Yasser Arafat, including most of the holy city of Hebron.

Uzi Landau, leader of the anti-disengagement Likud rebels, complained that the prospects would have looked completely different if the Finance Minister had resigned earlier. Pinhas Wallerstein, a militant West Bank settler leader, hoped Mr Netanyahu would join them on the platform of a protest rally in Tel-Aviv on Thursday, but he insisted on keeping out of internal Likud affairs.

Zevulun Orlev, leader of the pro-settler National Religious Party, called for an urgent Knesset session to debate early elections, but he would need 61 of the 120 MPs to force Mr Sharon to go to the country. The Prime Minister's aides remained confident that he would retain the "solid support" of 67 legislators.

"There is political turmoil," one of them told The Independent, "there is a political debate. Netanyahu's resignation will be another item added to the political upheaval. But Netanyahu will not be able to accumulate a critical mass of ministers and MPs to overturn the disengagement decision."

The resignation sent shock waves through Israel's business community, which had eagerly supported Mr Netanyahu's free-market reform programme. Shares on the Tel-Aviv stock exchange, which operates on Sunday, tumbled by up to 5 per cent. Mr Sharon is expected to reassure them by quickly appointing a new Finance Minister.