Israel's President Moshe Katsav has urged the country's Labour party to join a unity government despite its vow not to do so.

Labour party leader Amram Mitzna said the centre-left group would remain in opposition after a historic defeat at the polls this week.

But Ariel Sharon, whose centre-right Likud party won in a landslide, has made clear he favours a coalition with Labour to one with right-wing and religious parties.

Palestinian leader Yasser Arafat offered on Wednesday to meet Mr Sharon, but the Israeli leader - who has steadfastly refused to meet his Palestinian counterpart - swiftly rejected the offer.

Mr Arafat made the suggestion in an interview with Israel's Channel 10 television.

US President George W Bush congratulated Mr Sharon on his election win while urging him to keep working for a lasting peace in the Middle East, which would include a Palestinian state, a White House spokesman said.

Mr Sharon's Likud Party nearly doubled its Knesset (parliament) seats to 37, while its traditional rival, Labour, suffered its worst election defeat.

President Katsav on Wednesday urged Mr Mitzna to reconsider his stance.

"I understand Amram Mitzna's very topical considerations, but despite this I call on him to join a unity coalition," he said.

Pressure

The BBC's Jeremy Cooke in Jerusalem says Mr Mitzna is under intense pressure to change his mind, both from Mr Sharon and from members of his own party.

It is no shame to be in the opposition, and I promise you that our time there will be short Labour leader Amram Mitzna

There has been speculation that Labour could split over the question of whether to join the government or stay in opposition.

The third largest force in the Knesset, the secular Shinui Party, has repeatedly stated its opposition to sharing power with Mr Sharon's former allies among the religious parties.

However, Shinui leader Tommy Lapid told Israel radio on Wednesday that his party, which more than doubled its Knesset seats, would be ready to work alongside the ultra-Orthodox parties in an emergency coalition government in the event of war.

Palestinians have described the outcome as counter to the interests of peace, and warned their situation was likely to deteriorate further.

Defiant

After the size of his victory became apparent, Mr Sharon appealed for reconciliation, stressing that the differences between the parties "should not become a barrier for national unity."

"The differences between us are dwarfed by the murderous hatred of the terror organisations," Mr Sharon told a crowd of jubilant supporters in Tel Aviv.

Many Palestinians were dismayed by the results

Despite his election victory, Mr Sharon now faces a period of political horse-trading as he attempts to build his coalition and may have to seek out partners among right-wing and religious parties such as Shas, which won 11 seats.

Aides to Mr Sharon say he would like the Labour Party back inside his coalition rather than leading a narrow right-wing religious government.

Such a narrow coalition would inhibit Mr Sharon's ability to make concessions to the Palestinians and would likely be short-lived, analysts say.

Palestinian officials voiced disappointment with the results.

"This is a heavy blow to a peaceful settlement. The Israelis have committed an historic mistake which they and the Palestinians will regret," said Palestinian Information Minister Yasser Abed Rabbo.

Senior official Saeb Erekat expressed fears that conditions for the Palestinians could only deteriorate further given the Israeli electorate's shift to the right.

Israeli election officials said turnout among voters was the lowest in the state's 55-year history, with 69% of the 4.7 million-strong electorate participating.