Occupied Jerusalem: The head of Israel's main opposition party, Benjamin Netanyahu, yesterday called on Prime Minister Ehud Olmert to quit for the first time since an inquiry blasted his leadership in the Lebanon war.

"It is clear that this government has lost the little confidence that the people had in it," Netanyahu, a former premier, told lawmakers from his Likud party.

"It is clear that the only thing left to do is to give the people the opportunity to have their last word," he said, calling on Olmert to step down and called for early elections.

After dousing a mutiny from his own party over a scathing Lebanon war report, Olmert faced a new battle with a planned street protest.

Olmert meanwhile, sailed through a special session of parliament called in the wake of the government inquiry that blasted his handling of the 33-day war.

Despite several impassioned speeches calling on him to resign, the session closed with no attempt to push through a no-confidence vote in view of a 78-member coalition that so far has stood by the beleaguered premier in the 120-seat Knesset.

Peres defence

"Our country needs new leadership," Netanyahu told the half-empty chamber.

"Those who failed at war cannot be those who correct the failures... We have to go back to the people and allow them to express themselves," he said.

Olmert, who has resisted enormous public pressure to step down after the publication of the report on Monday, did not address the session leaving Deputy Prime Minister Shimon Peres to defend the government.

"This government did err," Peres said. "This government was instructed by the inquiry to immediately fix what needs fixing and it is doing so... If you made a mistake it means you acted."

Olmert's next challenge was a rally late yesterday in Tel Aviv's Rabin Square that is expected to attract thousands of people.

"This demonstration is an occasion for people to show a red card to Ehud Olmert and (Defence Minister) Amir Peretz and tell them that they should step down," reserve General Uzi Dayan, an organiser of the protest, told army radio.

Beirut dailies said yesterday Olmert should quit after a damning report on his handling of the Lebanon war, which they said showed that offensives do not bring security.

Al Akhbar, close to the Hezbollah-led opposition, said "the dust of the earthquake provoked by the Winograd report has withered away to reveal the image of a struggle for survival by Prime Minister Ehud Olmert, and a battle of succession in Israel." A front-page editorial in the leading An Nahar newspaper said the internal situation in Israel has been "destabilised" because of the Winograd report.

"The question is not Olmert, but what is after Olmert. But the most important question remains: ... will Israel learn the most important lesson?" asked An Nahar.

Potential obstacles faced by PM

- A large turnout at a protest rally in Tel Aviv yesterday could renew public pressure on Olmert to resign or reignite efforts within Kadima to persuade him to step down. Under party bylaws, he cannot be dismissed as Kadima's leader. Should Olmert step down, he would stay on as caretaker prime minister until a new government was formed, a process that could proceed without a national election and set the stage for his successor as Kadima leader to become the next premier. Frontrunners in Kadima to succeed Olmert are Foreign Minister Tzipi Livni and Deputy Prime Minister Shimon Peres.

- Olmert's government could lose its majority in parliament, paving the way for an election, if the largest coalition partner, the Labour party, decided to bolt after a May 28 leadership contest. Such a move would be risky for centre-left Labour because opinion polls predict former Prime Minister Benjamin Netanyahu's right-wing Likud party would win an election if it were held now. The frontrunners in Labour's leadership race are former prime minister Ehud Barak and Ami Ayalon, a former admiral. Opinion polls show either could defeat the incumbent, Defence Minister Amir Peretz.

--Olmert could survive until the Winograd Commission issues the second half of its report, expected to be released in several months' time. The panel has hinted in the findings published this week that it might ultimately recommend Olmert resign.

- Reuters