Netanyahu is trying to keep coalition partners onside

The decision, which could mean 10,000 sackings of public sector workers, a 10% cut in civil servants' salaries and cutbacks in public pensions, opens the door for $10bn of additional US aid.

But the 11bn shekel ($2.3bn; �1.5bn) package, designed to reduce Israel's massive budget deficit of 6% of national output, still has to be approved by Parliament in a series of votes beginning on 14 April.

The religious rightwing parties in Prime Minister Ariel Sharon's coalition could yet follow the lead of two National Religious Party ministers, who alone among the 23 Cabinet members opposed the plan.

They object to cuts in child benefit and other spending important to the more orthodox segment of the population, which forms their power base.

There is also the matter of union and public opposition to the cuts, and the main union federation, the Histadrut, is vowing to call its members out on strike.

Intifada

Israel's economy is in tatters after two and a half years of renewed violence between Israelis and Palestinians.

We could fall into a precipice and never get out Benjamin Netanyahu Israeli Finance Minister

On top of the spiralling cost of security - including the building of a massive wall around those parts of the occupied territories still under nominal Palestinian control - Israel's myriad tech companies have been flattened by the bursting of the dot.com bubble.

Tax revenues have plummeted as unemployment has soared above 10%.

The tourism industry is also suffering as a result of the unrest in the region.

The economy has contracted for the past two years, and this year is unlikely to be much different.

'Precipice'

Finance Minister Benjamin Netanyahu made no secret of the importance of the vote in Cabinet.

In voting overwhelmingly for the austerity package, he said, ministers understood that "we could fall into a precipice and never get out".

"They understand that we have to cut expenditures and stimulate the private sector."

Part of this stimulation is coming in the shape of tax cuts despite the shrinking size of tax revenues.

Mr Netanyahu was asked by reporters whether he would consider raising taxes if parliament slimmed down his planned cutbacks.