Israeli Prime Minister Ariel Sharon has said his new government's first task must be to tackle the country's worst economic crisis. Mr. Sharon set out his policy prior to winning a vote of approval in the Israeli parliament (Knesset) for his coalition government, formed after last month's elections. He spoke soon after his long-time rival Binyamin Netanyahu accepted the post of finance minister, which could now be in the spotlight.

Mr. Netanyahu was removed as foreign minister and initially refused to take on the economy portfolio, seen as a less prestigious job.

He reconsidered and Mr. Sharon agreed to extend him new powers over company privatizations and more independence over policies to revive the flagging economy.

Silvan Shalom - who had been finance minister - was appointed as foreign minister. He is seen as a Sharon loyalist with little experience of foreign affairs who is unlikely to change Israel's policy.

Mr. Sharon told the Knesset that the Palestinian issue would be handled in "due time" and that "painful concessions" might have to be made.

Among other policy guidelines for the new government, reported by the Associated Press news agency, are:

·-bringing security to Israel and its citizens

· working to advance peace throughout the region

· building a security fence between Israel and the West Bank

· working to improve existing Jewish settlements while not allowing new developments.

Parliament's vote of approval for the new government is largely a formality as Mr. Sharon controls more than half of the Knesset's 120 seats with his Likud Party's coalition partners

He has an eight-seat majority in the house after deals were made with the National Religious Party (NRP), the ultra-nationalist National Union Party (NUP) and the secularist Shinui in the aftermath of January's elections.

US President George W Bush restated on Wednesday that Israel would be expected to support the creation of a Palestinian state, but two of the coalition parties are fundamentally opposed to such a move.

The National Union party - with seven seats - is seen as particularly hardline.

A senior official in the Labour Party, which is now in opposition, described the new government as the most rightist and extremist in the history of the state.

PHOTO CAPTION

Israeli Foreign Minister Benjamin Netanyahu (C) walks behind Prime Minister Ariel Sharon (L) and Finance Minister Silvan Shalom (R) during a Likud Party conference in Tel Aviv in this November 12, 2002 file picture. REUTERS/Gil Coh