Prime Minister Ehud Olmert averted a split in Israel's restive coalition on Wednesday by striking a deal with his biggest partner, the Labour party, that stopped it backing a bill to dissolve parliament.

Labour's leader, Defence Minister Ehud Barak, agreed not to support the right-wing opposition's proposed legislation after Olmert pledged to hold an internal vote in his Kadima party that could remove him as its head by September 25, both sides said.

"The real meaning of this (agreement) is that the state of Israel has been extricated from its daily preoccupation with holding new national elections," Kadima negotiator Tzachi Hanegbi told Israel Radio.

"Barak did well to recognise there's a red line."

Cracks appeared in the coalition last month with the launch of a police investigation into more than $150,000 (76,000 pounds) that Olmert received from an American financier while in previous government posts. Barak called on the prime minister to step aside.

Olmert, who denies any wrongdoing but has pledged to resign if indicted, had threatened to fire Labour ministers should their faction join forces with opposition leader Benjamin Netanyahu to dissolve parliament and trigger an early election.

Ratification of the bill would have undermined the government at a time when Olmert is trying to meet a U.S. deadline for a peace accord with the Palestinians, pursue Turkish-mediated talks with Syria, assemble a prisoner swap with Lebanese Hezbollah and monitor Iran's nuclear programme.

GAZA TRUCE FALTERS

On Tuesday, Palestinian militants fired rockets into Israel, breaching a less than week-old, Egyptian-brokered truce in the Gaza Strip in what they called retaliation for the Israeli army's killing of one of their commanders in the West Bank.

Israel responded by not opening its border crossings with Gaza for routine operations on Wednesday. Under the ceasefire, Israel had agreed to ease its embargo on the impoverished Hamas-ruled territory by allowing in more key imports.

Political commentators believe neither Olmert nor Barak is keen for a national ballot now given opinion polls showing them trailing far behind the hawkish Netanyahu and his Likud party.

Israel Radio said Likud was withdrawing the legislation rather than risk seeing it voted down, which under parliamentary procedure would mean a moratorium on when it could be brought to the Knesset again.

Since the corruption case came to light, several senior Kadima members have proposed themselves as Olmert successors. Israeli media have said the prime minister would likely run for re-election as party head, though he has not confirmed this.

Asked about the 11th-hour fence-mending deal between Olmert and Barak, senior Labour legislator Eitan Cabel said the party would still put a change of administration into action.

"Our first priority is safeguarding continued stability while assembling an alternative administration in which Olmert will be replaced, and that now appears to be in the works," Cabel said.

Holding a Kadima election as late as September would effectively postpone a national ballot until 2009 at the earliest - a reprieve for Olmert. The next election is currently scheduled for 2010.

"There will not be new (national) elections in 2008," Hanegbi said.