Israel appears set for a snap election after the head of the governing Kadima party, Tzipi Livni, said she had given up efforts to form a coalition.
She had given potential partners a Sunday deadline to decide whether to join Kadima in government.
But the key Shas party turned her down.
Shas is Israel’s third largest party and the decision not to join Livni was taken by Rabbi Ovadia Yosef, the spiritual leader, after consulting the party’s supreme authority.
Analysts say no other coalition is likely to emerge and Ms Livni’s decision will lead to new elections, which could be held in February or March.
The next parliamentary poll had been scheduled for 2010.
Ms Livni could have a tough fight in an early election, which opinion polls suggest could bring the right-wing Likud party to power.
If Likud wins power in Israel it will almost certainly scupper peacemaking moves towards the Palestinians being pursued by outgoing Premier Ehud Olmert
Interviewed in the street one Israeli said: I don’t think she’s the right person to be prime minister. She failed, she never did anything outstanding that makes her an oustanding politician’
Another said: ‘For my opinion it’s very bad because the economy now it’s in a very bad situation, and the elections cost a lot of money.’
After her election as Kadima leader last month, Ms Livni was asked to form a government to replace that of outgoing Prime Minister Ehud Olmert – who is stepping down amid corruption allegations.
The Shas party, the country’s third largest party and a key player in the ongoing coalition talks, said on Friday that it would not join Livni’s coalition, lead by the Kadima party.
The decision makes early general elections increasingly likely.
The decision was taken by Rabbi Ovadia Yosef, the spiritual leader, after consulting the party’s supreme authority, Shas said.