Israel's president is expected to ask Foreign Minister Tzipi Livni to form a new government on Monday.
This follows the resignation on Sunday of Prime Minister Ehud Olmert who faces facing growing pressure over multiple corruption inquiries.
Ms Livni last week replaced Mr Olmert as leader of Kadima, the largest party in the Israeli Knesset.
President Shimon Peres is holding consultations with a number of political party leaders.
Essentially, he is inviting opinions on who the party leaders want to see as prime minister or whether they are seeking early elections.
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Olmert lawyers quiz businessman ... as expected, Ms Livini is invited to try to form a government, she will have 42 days to build a coalition. If she is successful, she should be able to govern until elections in 2010.
If she fails to do so, an early election is likely to be called.
She has already started talks with parliamentary factions that could be included in a future coalition.
Mr Olmert is likely to remain as caretaker prime minister while Ms Livni tries to form a new government.
He denies any wrongdoing, but police have recommended he be indicted over two of the inquiries - allegations that he misused cash payments from a US businessman, and accusations that he double-billed government agencies for trips abroad.
Ms Livni needs to build a coalition representing 61 seats in the 120-seat parliament.
Ms Livni met Defence Minister Ehud Barak, who is head of Labour Party, the second largest parliamentary bloc, to negotiate a possible partnership.
Several right-of-centre parties have called for early elections, arguing that any coalition formed by Ms Livni would not offer stable government.
Opinion polls suggest that the Likud party led by Binyamin Netanyahu would benefit from an early poll.
(BBC)
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