Voters snub peace candidate and opt for more from hardliner Sharon

The Prime Minister who has presided over two years of ever-rising casualties and an economic slide is voted back in

Ariel Sharon is set to remain Prime Minister of Israel after his Likud party won a resounding victory in national elections yesterday, according to television exit polls.

Blamed by many for setting off the Palestinian intifada when he visited the Temple Mount, or Haram al-Sharif, Mr Sharon has presided over two years of ever-rising casualties, both Israeli and Palestinian, and the slide of the Israeli economy into crisis. Yet Israeli voters yesterday handed Mr Sharon a mandate to continue his hardline policies.

An exit poll for Channel One television released as polling stations closed yesterday evening predicted that Likud would raise its share of seats in the Knesset, Israel's parliament, from 19 to 36.

"Today is a day of victory for all of us," Mr Sharon said in his victory speech. "An historic victory, a great victory.

"It is permissible to be happy about the victory, but there is no room for celebrations. The battle against the terror organisations has not ended, and it is claiming victims every day."

Amram Mitzna, the leader of the opposition Labour party, conceded defeat. Labour suffered the worst defeat in its history, according to the exit poll, which predicted it would win just 18 seats. Telephone polls for rival television stations predicted similar results, with 32 to 35 seats for Likud, and 18 or 19 for Labour.

Israeli voters roundly rejected Mr Mitzna's pro-peace election campaign, in which he promised to resume peace negotiations with Yasser Arafat and withdraw immediately from the Gaza Strip and within a year from part of the West Bank.

In his concession speech Mr Mitzna was defiant, insisting he would not resign, as his rivals in the party began to suggest, but would lead the party in opposition. "The Labour party under my leadership will remind Sharon and the entire public every day and everywhere that there is an alternative. That there is another path," he said.

The polls were more confused about the results further down, where the secularist Shinui party, led by Tommy Lapid, appeared to have beaten the ultra-Orthodox Shas party out of third place. Channel One's exit poll gave Shinui 15 seats to Shas' 12, while the other two polls gave Shinui a stronger victory, with 17 seats to Shas' 10.

For Mr Sharon, winning the popular vote yesterday was the easy part. He now has to put together a coalition he can work with.

Mr Sharon has made it clear all along he wants a "national unity" coalition, including Labour. Such a coalition is also most voters' ideal outcome, according to the polls. But Mr Mitzna has made it equally clear he has no intention of taking Labour back into coalition under Mr Sharon, as they were for most of the past two years. That leaves Mr Sharon with a headache.

Shinui's success will only make it a bigger headache. A secular coalition with Labour and Shinui would certainly be popular with the secular voters. But it could also alienate many Sephardim ­ Jews of Middle Eastern and Mediterranean origin ­ and religious voters who have traditionally supported Likud.

If Labour stays out, Mr Lapid will be just as reluctant to go into a coalition that includes any religious parties. That would leave Mr Sharon relying on the sort of coalition he has said all along he does not want: with the far right, who have made it clear they will fiercely oppose any move towards the Palestinian state that President George Bush has called for, and which Mr Sharon says he plans to deliver. If the far right ties his hands, it could queer Mr Sharon's pitch with the Americans, the last thing he wants.

Mr Sharon looks likely to continue his hardline policy in the conflict with the Palestinians ­ the tanks and curfews will stay in Palestinian towns. Palestinians greeted the results with dismay. "Israelis are preparing themselves for more violence and escalation, not for a peace process," said Saeb Erekat, a Palestinian minister.

Mr Sharon has said he will pursue President Bush's "two-state solution", but he has also made it clear that the Palestinian state he is talking about will have its borders and foreign policy controlled by Israel, and be on too little of the occupied territories for the Palestinians to be likely to accept it as a peace settlement.

The turn-out was the lowest in the history of Israel elections, at 72 per cent.