Jerusalem, May 5 (IANS): Israeli Prime Minister Benjamin Netanyahu's Likud party on Monday signed a coalition agreement with the ultra-Orthodox Shas party, passing another hurdle on its way to establishing a new government following the March 17 elections.

Under the agreement, Shas leader Aryeh Deri would become the economy minister and his party will obtain another two ministerial posts, including that of the religious affairs ministry it has coveted, reports Xinhua news agency.

The Likud party emerged as the largest party in the 120-seat parliament after gaining 30 seats in the elections. Netanyahu was designated by Israeli President Rivlin to form a new cabinet after being recommended by more than 60 parliamentarians.

Likud has already managed to sign coalition agreements with the center Kulano party, headed by former Likud member Moshe Kahlon, and United Torah Judaism, another ultra-Orthodox party.

Netanyahu must present his new government by Wednesday to the parliament (Knesset). His party is now trying to finalise an agreement with the Jewish Home party in order to muster support of at least 61 parliamentarians.

The Jewish Home party's support is key to Netanyahu after Foreign Minister Avigdor Lieberman announced earlier on Monday that his Israel Beytenu party will not join the next government.

Lieberman will resign his post and remain a Knesset member serving in the opposition.

Without Lieberman, Netanyahu has to settle for a right-wing coalition with a narrow two-thirds majority of seats in the parliament, if he was able to reach a deal with the Jewish Home. With Lieberman, Netanyahu would have enjoyed a more stable coalition backed by 67 lawmakers.

Following Lieberman's resignation, Bennett may resume his efforts to acquire the Foreign Affairs portfolio, which is also coveted by a number of Likud members, the Ha'aretz daily reported.