Foreign Minister Tzipi Livni has narrowly won election as Kadmima party head thus setting the stage for her ascension to the office of Prime Minister once she forms a coalition.

Livni, a former Mossad agent, defeated Transport Minister Shaul Mofaz by a scant 300 votes to claim the leadership position from disgraced Prime Minister Ehud Olmert who resigned in the wake of scandals.

Seen as more dovish than some of the hard line ex-Likud party members who opposed her, Livni has been the lead negotiator with the Palestinians and has developed a good repoire with her counterparts in the Palestinian leadership.

However, the status of Jeruselem may not be on the table due to some deal making she will have to make with the ultra-orthodox parties whose demands may include no negotiation on dividing the city:

Already some of the smaller parties that might expect to be in the coalition have begun laying out their demands, notably among them Shas, which represents ultra-Orthodox voters.

Shas, which has 12 seats in the Knesset, or parliament, is adamantly opposed to any division of Jerusalem, which might complicate Livni's commitment to negotiate a two-state peace agreement with the Palestinians. One of the core issues of any agreement is the future of Jerusalem, which both Israel and the Palestinians claim as a future capital.

"If it becomes clear that Jerusalem is on the negotiating table ... then we won't be part of the coalition," said a Shas spokesman, Roi Lachmanovitch.

Kadima has 29 seats in the 120-seat Knesset and will need Labour's 19 seats, as well as other smaller parties, probably including Shas. Livni has proposed reaching out to the leftwing Meretz party, which has five seats.