Itzik Soudri, the Shas spokesman, said that his party was leaving because of the government's failure to bail out Shas' troubled educational and welfare network.
Shas officials have said that the school and welfare system is the equivalent of $24 million in debt.
The chairman of Shas' parliamentary caucus, Yitzhak Vaknin, said his party had given Barak 24 hours notice to come upwith a solution. "I am not optimistic. We will vote against the budget, and that means we are no longer part of the coalition," Vaknin said.
In Israel's parliamentary tradition, a vote against the budget is tantamount to a vote against the government -- meaning resignation for coalition parties. The budget must be passed by Dec. 31.
Shas Health Minister Shlomo Benizri said, however, that he was confident that a solution could be found. "There is progress, and there is goodwill," he said.
The conflicting messages suggest Shas could simply be posturing in a game of political brinksmanship.
The timing is bad for Barak, who wants strong support as he launches difficult negotiations with the Syrians and goes into final status negotiations with the Palestinians.
Shas' departure leaves Barak with a minority coalition of 51 legislators out of the 120 members in parliament. He is assured the outside support of an array of smaller opposition parties.
One of Barak's ministers said it was crucial to keep the Shas' support. "I'm certain there will be" a solution, Transport Minister Yitzhak Mordechai said. "Shas entered the coalition because it is vital to the coalition."
Shas leaders said they were outraged when Barak's finance minister, Avraham Shochat, managed to pass the budget through the parliament's finance committee on Sunday by making concessions to smaller parties, while refusing to compromise with Shas.
The departure of Shas, an ultra-Orthodox religious party, would leave open the possibility that eight members of strictly secular parties could join his coalition, although that would leave him with a minority of 59 legislators.
However, in any vote on a peace treaty with Syria or a final status agreement with the Palestinians, Barak would probably have the support of the small Arab parties, who have ten legislators.
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