The news of Mr Sharon’s widely anticipated departure by Israeli military radio came after new Labour leader, Amir Peretz, won party backing for Labour to leave Israel’s governing coalition.
The split has precipitated an early run to the polls which were set for November next year.
“Senior Likud officials believe that Sharon is about to smash the existing political establishment in Israel to pieces and to build on its ruins a system that will crystallise and remain stable for years to come,” Israel’s Yediot Aharonot daily newspaper reported shortly before the announcements were made.
Mr Sharon’s decision to make a clean break after months of bitter in-fighting with Likud hardliners comes as a fresh direction for Labour was outlined by Mr Peretz, who took over as leader from party veteran, Shimon Peres, earlier this month.
Peretz rallies Labour
In his first impassioned speech, Mr Peretz told a Labour central committee meeting that the party should stop propping up the current regime and carve out a new path to peace for the Israeli nation.
“We are offering a real alternative to the apocalyptic outlook that there is no one to talk with, and that we must always live with our sword in hand,” Mr Peretz said, speaking in Tel Aviv.
“The need to get out of the sinking sands of the disputed Palestinian territories… is a national priority of the first degree,” he told the committee, saying Labour was willing to sign a permanent peace agreement with the Palestinians.
“Only an agreement which protects the interests of both sides has any chance of taking hold.”
Mr Peretz stands on a platform of rolling back spending cuts and free-market reforms, as well as withdrawing from West Bank settlements and talking peace with Palestinians as soon as possible.
The Labour leader also hit out at Prime Minister Ariel Sharon and the Likud Party, accusing them of playing the ‘security card’ as an excuse for ignoring Israel’s problems of chronic unemployment and poverty.
“For 28 years, they have scared us with the demon of security, saying ‘wait, wait until we have dealt with terror’.”
Political manoeuvring heats up
With a general election now three to four months away, jostling for political prominence has begun in earnest.
Mr Sharon has hinted at a continued relationship with Shimon Peres, with speculation rife that the two men will join forces in a new centrist party seeking to woo disaffected MPs from both Likud and Labour.
“I wanted to thank you for all your work within the government; it is the start of the joint work between us,” Mr Sharon told Mr Peres in his weekly cabinet meeting.
“Shimon, this is the beginning of (a new) cooperation.”
For Israel’s smaller right-wing parties, survival in the new political landscape will most likely come in the form of a united nationalist bloc.
“The national camp has been greatly weakened and if the right wants to succeed and survive, we need to unite the Likud, the National Union, the National Religious Party and Yisrael Beiteinu,” said former cabinet minister Avigdor Lieberman who was sacked over his opposition to the Gaza evacuations.
However, Likud must first take care of the immediate task of replacing Mr Sharon, with six senior members indicating their interest in taking over the party’s reins – including the prime minister’s arch rival, Benjamin Netanyahu.
Israel’s parliament will vote on an election date mid-week amid widespread expectations that polling will take place on March 28.