Avigdor Lieberman's Yisrael Beitenu (Israel Our Home) party and Netanyahu's conservative Likud signed the deal in parliament on Wednesday morning.

The pact, which follows several days of intense negotiation, will expand the slim one-seat parliamentary majority of Prime Minister Benjamin Netanyahu's coalition from 61 to 67 seats.

"Broadening the government, with the inclusion of the Yisrael Beitenu party in the nationalist coalition, is an important and required step that will ensure its stability," Likud negotiator Yariv Levin said in a statement.

Under the terms, Lieberman will take over the key defense portfolio, while another member of his hardline nationalist party will become immigrant absorption minister. The government also agreed to allocate around 1.4 billion shekels ($363 million, 325 million euros) to pensions of elderly Israelis.

"These are the two major issues that are important to our constituency, and significant achievements," Lieberman's spokesman, Tzachi Moshe, told the AFP news agency.

The funds would also benefit immigrants from the former Soviet Union, a major support base for Lieberman, who was born in the ex-Soviet republic of Moldova.

Shift to the right

Lieberman is a polarizing figure in Israel, where some observers have raised fears his appointment could see the country's politics drift too far to the right. There are also concerns his role in the defense ministry could create tensions between the government and the comparatively moderate defense force command.

Lieberman, Israel's former foreign minister, has come under public scrutiny for questioning Arab-Israelis' loyalty to the state and attempting to pass legislation that would require Israelis to sign a loyalty oath or have their citizenship revoked. He has also proposed legislation that would impose the death penalty on convicted "terrorists."

In an attempt to ease fears over the ultranationalist's appointment, Netanyahu has said he will continue to seek peace with the Palestinians and oversee the defense ministry's policies, which include control over the occupied West Bank.

"Ultimately, it's the prime minister who directs everything together with the defense minister, with the chief of staff, and apparently I haven't done such a bad job during my years as prime minister - that's the way it is going to be now," he said at a news conference on Sunday.

Lieberman is expected to be sworn in as defense minister next week.

nm/kms (AFP, Reuters)