Israeli President Shimon Peres on Monday granted Kadima leader Tzipi Livni an extension of 14 days to finalize the formation of her new government.

Livni arrived at the President's Residence at around 11:00 a.m. (0900 GMT) and met with Peres for an hour and 20 minutes, reported the website of local daily Yedioth Ahronoth.

Israel's Foreign Minister Tzipi Livni (L) talks with President Shimon Peres at the president's official residence in Jerusalem October 20, 2008 in this picture released by the Israeli Government Press Office (GPO). [Xinhua/Reuters]?

She made a briefing with Peres on the progress of the coalition talks, and asked him for a fortnight's extension in order to form her new government.

According to Israeli Basic Law, Livni's initial 28-day window for assembling the new cabinet has elapsed on Monday. The law allows her a 14-day extension.

But should she remain unable to form a new government by November 3, or should the cabinet she presents the Knesset (parliament) fail to gain a vote of confidence, Peres would be within his rights to assign another Knesset member (MK) to form a government in 28 days.

If this fails, a third MK can be given the role within two days, with 14 days to form a government. If this attempt fails, fresh parliamentary elections will be held within 90 days.

Peres tasked Livni with forming a new government in mid September, following Prime Minister Ehud Olmert's resignation and her subsequent election to head the ruling Kadima party.

Israel's Foreign Minister Tzipi Livni (L) shakes hands with President Shimon Peres at the president's official residence in Jerusalem October 20, 2008 in this picture released by the Israeli Government Press Office (GPO). [Xinhua/Reuters]

Livni has so far initialed a coalition agreement with Labor; however, talks with the ultra-Orthodox Shas and United Torah Judaism (UTJ) parties remain stalled.

Kadima officials are expected to meet again later in the week with UTJ and Meretz representatives.

Livni's negotiators expressed optimism that they would be able to reach a deal by the first day of the Knesset's winter session next Monday.

However, Kadima negotiator Yisrael Maimon admitted that large gaps remained in reaching a deal with Shas and other potential coalition partners, according to local daily Jerusalem Post.

On Sunday, Shas spiritual leader Rabbi Ovadia Yosef instructed party chairman Eli Yishai not to compromise on child allowance payments, as Kadima and Shas party negotiators ended their latest coalition talks without reaching an agreement.

Shas insists on allowances for "family payments" in 2009, at a cost of more than a billion shekels. Livni's negotiating team presented the Shas negotiating team with a compromise during a lengthy meeting on Friday, but Shas appears unwilling to bend.

Kadima has offered Shas an overall welfare package of around 600 million shekels, to be drawn from various budgetary sources.

Shas representatives also told their counterparts in Kadima that the party opposed any negotiations on Jerusalem in any way, shape or form, and would not sit in a government that had on its agenda diplomatic talks on Jerusalem.

"We have clear principles: that the government must become more socioeconomic, and on diplomatic issues that Jerusalem is not for sale," Yishai said on Sunday.

Meanwhile, Labor Party chairman, Israeli Defense Minister Ehud Barak, warned that the agreement between Labor and Kadima initialed last week might not be signed if Labor's demand for an additional representative on the Judicial Appointments Committee were not met.

Speaking in an interview on Israeli Channel 2 television, Barak hinted that he would not oppose Shas' budgetary demands, although he was against child allowances according to the old system.

Senior Labor Party members have been in talks with senior Shas representatives over the past few days to persuade them to join Livni's cabinet.

(Xinhua News Agency October 21, 2008)