Political earthquake for Israel's Labour Party sweeps away veteran leader Peres

Mr Peretz's unexpected victory over the octogenarian former prime minister and current deputy to Mr Sharon heralds what could be a shift in the tectonic plates of Israeli politics, which Mr Sharon has dominated since the beginning of the century.

Mr Peretz, who in a typically vigorous speech yesterday claimed the mantle of the late Yitzhak Rabin in signalling his desire for early and substantive peace negotiations with the Palestinian leadership, made clear throughout his leadership campaign his intention to pull the party out of the coalition.

The immediate result of a move which he showed every sign yesterday of sticking to will be that a general election will now take place by the end of the first quarter of next year rather than in November 2006 as planned.

Mr Sharon has relied on Labour under Mr Peres - whose astoundingly long political career dates back to his work as an aide to Israel's founding prime minister, David Ben Gurion - to keep his government afloat in place of the hard-right wing of his own Likud party, which has broken decisively with the Prime Minister over the withdrawal of settlements and military forces from Gaza in August.

While most analysts are dismissive of Mr Peretz's chances of winning a general election, particularly against Mr Sharon, the latter's telephone call of congratulations to Mr Peretz yesterday cannot disguise the fact that the Prime Minister, popular in the country but beleaguered in his party, faces a formidable set of unexpected and unwelcome problems. The two men are to meet on Sunday.

There is continuing speculation that Mr Sharon may break altogether with the Likud rebels, led by the former finance minister Benjamin Netanyahu, who wants to replace him as the party's leader, and form a new party of the "centre" to contest the elections.

But while the polls suggest that Mr Sharon would have an excellent chance of forming the biggest single party in an electoral contest with a right-wing Likud party led by Mr Netanyahu and a Peretz-led Labour Party, the new political landscape appears to deprive him of the numerically significant coalition partner he would need to form a viable government after such an election.

While Mr Peretz's approach to economic policy, which in British political terms would probably be described as "old Labour", will face considerable opposition inside as well as outside his own party, his forthright call yesterday for a return to the peace process may signal a more significant shift in the terms of Israeli political debate.

Speaking at a commemoration event near the Jerusalem grave of the former prime minister Yitzhak Rabin, who was assassinated 10 years ago this month, Mr Peretz declared: "We will not rest until we reach a permanent agreement [with the Palestinians] that would secure a safe future for our children and that would provide us with renewed hope to live in a region where people lead a life of co-operation and not, God forbid, where blood is shed."

Mr Peretz, who is the chairman of the trade union federation Histadrut, added: "I came today to make a vow to Rabin, once again, that I intend to do everything I can to continue his way, I intend to do everything I can so that [Rabin's] assassin would know he failed to murder peace."

Mr Peretz, who was excoriated by the secular Shinui party leader, Tommy Lapid, as a "social demagogue" who would now lead an "anti-reform party", was apparently helped by a low turnout in which he was delivered 42.35 per cent of the votes, compared with 39.96 per cent for Mr Peres.

The outgoing leader was conspicuous in not offering immediate congratulations to his successful opponent. But Mr Peretz appealed to him in his victory speech to work "by his side" adding: "Don't leave us alone, Shimon. If not for me, then do it for the party's sake; if not for the party, then do it for the country."