Prime Minister Ariel Sharon (search) and Israel's opposition leader failed to reach a final agreement on bringing the Labor Party into the government, a prerequisite to push through the Israeli withdrawal from the Gaza Strip (search).

Sharon, who lost his majority in parliament this summer after some coalition allies quit over the Gaza pullout, needs the moderate Labor for his planned withdrawal from Gaza and four West Bank settlements by the end of 2005.

Sharon and opposition leader Shimon Peres (search), long-time rivals but also occasional political partners, failed Sunday night to work out disagreements over the proposed 2005 state budget. Peres' Labor Party agreed to attend another round of coalition talks Monday.

Sharon and Peres have reached preliminary agreement on the terms of the Gaza pullback, but remain stuck on economic issues. One Labor Party member described the government's economic policies as "piggish capitalism."

The two differed on the timing of the Cabinet's vote on the budget. Labor has asked that the vote be postponed until it has joined the coalition. However, Peres said Sharon told him he could not put off the vote, scheduled for Sunday.

Peres said his party wants bigger budget allocations for pensioners and regional councils, which suffer from severe deficits and haven't been able to pay their employees for months.

"If they want to form a government without us, they can. In my opinion that will not be a government that supports disengagement," Peres said, referring to the Gaza pullout plan. "If they want a government that supports disengagement they can't do it without us."

Finance Minister Benjamin Netanyahu (search) — who reportedly opposes a Sharon-Peres alliance — added to the tensions Sunday when he presented his $59 billion budget, with $1.3 billion in cuts, including welfare spending.

Netanyahu is Sharon's main rival in the ruling Likud Party, and economic analyst Nehamia Strasler wrote in the Haaretz daily Monday that the finance minister's main purpose appeared to be to derail a Sharon-Peres alliance.

The prime minister's negotiators have been meeting with several parties to try to bolster his coalition. However, Israeli media reported that negotiations with two ultra-Orthodox parties, Shas and United Torah Judaism, are in trouble.

Labor, which favors steps more far-reaching than Sharon's withdrawal plan, is the only party that assures Cabinet and parliamentary approval of all stages of the pullout.

In the Gaza Strip, an Israeli helicopter fired three missiles Sunday near the Gaza-Egypt border in what the army said was an attempt to deter "hostile activity" in the area. The strike caused no casualties.

Also Sunday, the Palestinian daily Al Quds quoted Palestinian leader Yasser Arafat (search) as saying continued Israeli restrictions on Palestinian movement make it impossible to hold presidential and parliamentary elections.

However, Ali Jarbawi of the Palestinian elections commission said voter registration would begin early next month, despite the hardships. "If we do our job properly, it will increase pressure for elections," he said. Many feel the Palestinian leadership is using the Israeli presence as an excuse to delay voting.

Palestinians had hoped to hold elections in January and then June this year, but each time put them off, blaming Israeli restrictions.