Israel's popular foreign minister on Wednesday called on Prime Minister Ehud Olmert to step down and said she would seek to replace him — becoming the highest-ranking official to call for his resignation following a harsh report criticizing his handling of last year's war in Lebanon.

"I told him that resignation would be the right thing for him to do," said Foreign Minister Tzipi Livni, who is best placed to succeed Olmert as leader of the Kadima Party — and possibly as prime minister.

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Livni said she would remain in government "to ensure that improvements are carried out." Livni, Olmert's top rival in the party, said she believed Kadima could replace Olmert without holding new elections.

Under Israel's parliamentary system, Kadima could change leaders without losing power. Livni said when Kadima holds its party primary, she would run for the leadership. No primary date has been set.

"It's not a personal matter between me and the prime minister — this issue is more important than both of us," Livni said.

The 34-day war against Hezbollah guerrillas has been widely perceived as a failure. Monday's report said Olmert bore ultimate responsibility, accusing him of poor judgment, hasty decision-making and lack of vision. The harsh language has fueled growing calls for Olmert's resignation from the public, his party and members of his coalition, in addition to political rivals.

In Lebanon, the militant Hezbollah leader Hassan Nasrallah said Wednesday he "respects" his enemy's verdict of failure in last summer's war with his guerrillas.

"I will not gloat," the Shiite Muslim cleric told an audience in a south Beirut neighborhood complex that was rebuilt after being leveled by Israeli warplanes during the summer fighting.

But the militant Hezbollah leader also said the Israeli commission reviewing the Lebanon war had vindicated his claim that Israel had been defeated.

"The first important outcome of this commission is that it has finally and officially decided the issue of victory and defeat ... This commission spoke about a very big defeat," Nasrallah said.

Confidants of Defense Minister Amir Peretz, whose performance was also criticized in the report, said he was considering resigning. They spoke on condition of anonymity because no decision has been made, and there was no confirmation from his spokesmen.

Support for Peretz has dropped to the point that four people will be challenging his leadership of the Labor Party in late May. Peretz's expected ouster could be followed by a Labor pullout from the current coalition government, something that could cause the government to fall.

Livni could encounter difficulty in keeping the current coalition together. The ultra-Orthodox Shas party would have trouble serving under a woman, while the nationalist Yisrael Beiteinu party may be wary of cooperating with Livni, who is more dovish than Olmert.

A defiant Olmert opened a special Cabinet session by hinting that reports of his political demise were premature: "To those who are eager to take advantage of this report to reap certain political advantages, I suggest 'slow down."'

Two new polls published in Israeli newspapers Wednesday said some two-thirds of Israelis want Olmert to resign immediately. The surveys indicated that the hawkish former prime minister, Benjamin Netanyahu of the opposition Likud Party, would likely win handily if new elections were held.

Since the report was issued, Olmert has struggled to hold his coalition together. One minister from the Labor Party, Olmert's main coalition partner, already has quit, and there have been increasing signs of eroding support within Kadima.

At the 3 1/2-hour Cabinet session, ministers agreed to carry out the war report's recommendations for improved decision-making and crisis management, and to set up a committee to oversee the implementation, Cabinet Secretary Israel Maimon said.

Olmert told ministers that his government would best remedy the mistakes it made.

"We could make life easy and say 'Thank you, I was proud to serve the State of Israel,' and go," Maimon quoted him as saying. "But I know from past experience with such reports that no other government will implement this (report), only this government."

Demands that Olmert quit began shortly after the costly and inconclusive war, in which almost 4,000 Hezbollah rockets landed in Israel and 158 Israelis were killed. More than 1,000 Lebanese civilians and combatants also died, according to Lebanese officials.

The war broke out July 12 after Hezbollah guerrillas crossed into Israel, killed three soldiers and captured two others. Olmert's public support, high in the early days of the war, nose-dived after the fighting ended without Israel's achieving the two goals he declared — crushing Hezbollah and recovering the captured soldiers.