Israel's dovish Labor Party voted Sunday to withdraw from Prime Minister Ariel Sharon's government after new party leader Amir Peretz criticized Sharon's policies for increasing poverty -- kicking off a campaign for elections expected in March.

The Labor decision came at a party convention by a show of hands, following Peretz's wishes. With Labor out and Sharon's coalition crumbling, attention turned to setting an election date.

Advancing Israel's election from the original November 2006 date would likely sideline Mideast peace moves and counter whatever momentum was gained from Israel's withdrawal from Gaza and part of the West Bank, completed in September.

Sharon, meanwhile, is considering leaving the Likud Party he helped create in 1973, a move that would scramble the political scene ahead of the election.

Though Sharon has not announced his decision, politicians and Israeli media speculated he would set up a new party after Likud split over the pullout.

Also, Palestinians are concentrating on their own parliamentary election, set for Jan. 25, with the Islamic militant group Hamas running candidates for the first time and posing a significant challenge to the ruling Fatah Party of Palestinian leader Mahmoud Abbas.

Fatah primary elections began Saturday in the desert oasis of Jericho and, as expected, Palestinian negotiator Saeb Erekat won the nomination for the town's only seat, election officials said Sunday.

This month's surprise election of Peretz, a fiery union leader, as head of Labor accelerated the spiral toward early elections.

Labor joined Sharon's coalition government in January to buttress support for the Gaza pullout, but in one of his first moves, Peretz last week extracted letters of resignation from the eight Labor Cabinet ministers.

In his first campaign speech as party leader, Peretz told the convention that Sharon had partially corrected his mistake of building settlements in Gaza by pulling out, but he charged that in constructing them in the first place, Sharon had wasted "billions that could have been used to turn the education system around."

Blaming Sharon and his ex-finance minister, Benjamin Netanyahu, for increasing poverty and "humiliating" the poor, Peretz appealed to Israel's lower classes, traditionally Likud voters.

"Come join the new social pact," he said, "you are not abandoning Likud. Likud has abandoned you," emphasizing social issues over Israel's traditional election deciders -- security and the Palestinian issue.

In a brief reference to Mideast peacemaking, Peretz said he favored a united Jerusalem as Israel's capital and opposed permitting Palestinian refugees to return to Israel -- an attempt to counter efforts to paint him as an extreme dove who would make far-reaching concessions to the Palestinians.

He also said the creation of a Palestinian state is in Israel's interest as well as the Palestinians'.

Likud and Labor have agreed on a March 28 election date, said Benny Shahino, an adviser to Labor faction leader Ephraim Sneh. A formal announcement will be made Monday after Likud holds a final round of talks with smaller parties, Shahino said.

The parliament is set to vote as early as Monday on calling an election.

Sharon's Gaza pullout, a dramatic about-face after decades of settlement building and expansion in the West Bank and Gaza, fractured his party. Some Likud lawmakers withheld support from his initiatives, preventing him from adding two supporters to his Cabinet and demonstrating that Sharon's government could not continue to function.

Over the weekend, Sharon huddled with advisers about bolting Likud and starting a new party, which would aim for a center position between Labor and the traditional Likud. If Sharon leaves Likud, a free-for-all would develop to replace him as party leader, with at least five current and former Cabinet ministers vying for the party's endorsement as candidate for prime minister.

One of them, Agriculture Minister Israel Katz, hoped Sharon would stay.

"I would say that a united Likud will win the next elections and form the government," he told Israel TV.

Polls in weekend Israeli newspapers showed that if Sharon remains in Likud, it would maintain much of its present strength, while Peretz would lead Labor to a healthy increase.

Sharon at the head of a new party would scramble the electoral picture completely, with Likud as the main loser, according to the polls.