Binyamin Netanyahu is Ariel Sharon's main rival for leadership

He initially turned down the offer from Prime Minister Ariel Sharon but, hours later, was persuaded to reconsider.

The appointment was confirmed by Mr Sharon in an address to parliament.

Earlier reports had suggested that former Jerusalem mayor Ehud Olmert had won the post, after Mr Netanyahu, also Israeli prime minister from 1996-99, baulked at accepting a post considered less prestigious than his foreign affairs role.

But Mr Olmert has instead been appointed trade and industry minister, and handed deputy prime ministership to compensate, observers said, for not being given a higher ranking department.

List of demands

Mr Netanyahu's demands as finance minister included taking power over government companies, authority he himself transferred to the prime minister's office while premier in 1996.

The move would assist him in a privatisation drive.

Mr Netanyahu has also demanded direct responsibility for the negotiations with the US on loan guarantees.

As finance minister, he faces the task of pulling Israel out of what is commonly described as the worst recession in the country's history.

Analysts say one of the first decisions must be whether to take on the emergency economic plans of the previous finance minister or devise new ones.

Investors cheered the appointment, with the shekel strengthening on Thursday, and major share indexes closing 3.4-4.4% higher.