Gerhard Schroeder's Social Democrats held onto power in Germany's closest postwar election, but the chancellor will face a tougher opposition as he tries to reduce unemployment and revive the economy. He will also have to soothe bruised U.S.-German ties after a campaign that angered Washington.

Schroeder secured a second four-year mandate for his coalition with the small Greens party in Sunday's vote, but his majority in parliament was shaved to only nine seats from a previous 21.

His conservative rival, Edmund Stoiber, said that slender majority would not hold long.

"I predict that this Schroeder government will rule for only a very short time," Stoiber said.

He said Schroeder would face a reinvigorated opposition, at a time when the chancellor will have to tackle problems such as chronic unemployment and slow economic growth. Schroeder was embarrassed by a failed promise to cut the jobless total to 3.5 million by election day.

Schroeder's victory handed Europe's dwindling left another boost a week after Social Democrats triumphed in Sweden. A jubilant Schroeder appeared arm-in-arm with Foreign Minister Joschka Fischer of the Greens before cheering supporters in Berlin.

"We have hard times in front of us and we're going to make it together," Schroeder shouted.

Schroeder's outspoken opposition to a military conflict with Iraq was credited with giving him a late push in a tight campaign. But it provoked a rare open spat with the United States and accusations he whipped up emotions against a vital ally for electoral gain.

"What I criticize above all is that [Schroeder] opened the floodgates for anti-American tones," Stoiber said on German television, calling the crisis with the United States "the most devastating of the last 50 years."

Analysts expect Schroeder to adopt a softer tone after the election, but he showed no intention Monday of backing down. He has insisted he would not commit troops to a war in Iraq even if the United Nations backs military action.

"I have formulated a German position, and I have nothing to retract on that count," Schroeder told German television.

In Poland for a NATO meeting, Defense Secretary Donald H. Rumsfeld was asked Monday about the German election.

"I have no comment on the German elections' outcome, but I would have to say that the way it was conducted was notably unhelpful. And as the White House indicated, has had the effect of poisoning the relationship," he said.

Official results released early Monday showed the Social Democrats and Greens won a combined 47.1 percent of the vote for the lower house, or Bundestag. Opposition parties led by the conservatives totaled 45.9 percent.

That gave the Social Democrats and Greens 306 seats in the new 603-seat parliament, compared to 295 for conservatives and the pro-business Free Democrats. Reformed communists won the other two seats.

The Greens were exuberant after their best showing in their 22-year history -- 8.6 percent. But Fischer declined to say whether the Greens would demand another ministerial position.

"One must be modest in victory," he said.

Schroeder said he would swiftly begin negotiations with the Greens on a coalition pact laying out the government's agenda for the next four years, a task expected to take several weeks.

The victory was slimmer than Germany's previous closest election -- the 1976 vote, when a Social Democrat-led government won a 10-seat majority.

The rhetoric on Iraq reached a damaging peak in the final days of Schroeder's campaign when Justice Minister Herta Daeubler-Gmelin was reported to have compared President Bush to Hitler for threatening war to distract from domestic problems. She denied saying it.

The Social Democrats said she would not have a post in a new government, although she will be in parliament.

The Bush administration has reacted coolly to Schroeder's moves to repair the damage, including a letter to the president, but others in Washington were optimistic the frayed relationship could be mended.

Speaking on CNN Sunday, Democratic Sen. Joe Biden, chairman of the Senate Foreign Relations Committee, said the "core relationship between the Republic of Germany and the United States is solid. What you had is Schroeder doing what a lot of politicians do -- trying to get out his base."

Schroeder may have won, but his failure to deliver on a promise to reduce unemployment eroded support for the Social Democrats, which slid 2.4 percentage points from 1998's 40.9 percent result.

Stoiber's platform focused on the economy boosted the conservatives to 38.5 percent, up from 35 percent four years ago. The results indicate they have put behind them a campaign financing scandal that had engulfed the Christian Democrats and their former leader, Helmut Kohl.

But prospects for a conservative coalition were hurt by a scandal in the Free Democratic Party over deputy leader Juergen Moellemann's renewed attacks on a prominent German Jewish leader. The party's leadership demanded his resignation and he gave it on Monday.

The party raised its support to 7.4 percent from 6.2 percent -- less than expected.

German stocks took the re-election in stride Monday, then fell for what analysts said were reasons not related to Sunday's vote. After rising about 1.3 percent at the open in Frankfurt, the DAX 30 index then slipped and traded down 3.88 percent in the afternoon.

Some analysts trace the drop back to uncertainty over the possible U.S. military campaign against Iraq. Many in Europe fear a war could disrupt economic activity and drive up oil prices, stalling the economy just as it begins to recover from a period of sluggish growth.

Some 79 percent of Germany's 61 million voters turned out Sunday -- casting two votes, one for a local candidate and one for a party. The party vote determined the percentage of seats each party won in the Bundestag, or parliament, chosen from a list of candidates submitted.

Beyond his forthright stand on Iraq, Schroeder broad-brushed much of his agenda for a second term except to uphold values like a fair society and the welfare state.

Stung by Germany's jobless problem, he has pledged to reform the highly regulated labor market. He has also promised to expand all-day schools and child care to make life easier for working mothers.