A third coalition in a row between Fianna Fáil and the Progressive Democrats, supported by a group of Independents, has emerged as the favoured option of the Taoiseach, Bertie Ahern.
Negotiations will take place over the next two and a half weeks to establish if such an arrangement is feasible by the time the Dáil meets on June 14th.
A Fianna Fáil-Green Party coalition appears to be Mr Ahern's second preference. He stressed his commitment yesterday to issues like energy supply and the environment, citing speeches he had made on the issues earlier this year.
A number of his senior Ministers are believed to favour a coalition deal with the Greens.
The Green TDs met yesterday and decided to take soundings within their own party on how to proceed. "We want a responsible, stable and effective government and at this stage we are ruling nothing out," party leader Trevor Sargent said afterwards.
Later he appeared to reverse his pledge to step aside as leader if his party went into coalition with Fianna Fáil and his Dáil colleague, John Gormley, insisted that Mr Sargent would remain as leader if a deal was struck with Mr Ahern.
Meanwhile the Fine Gael leader, Enda Kenny, insisted he was still in with a chance of being elected taoiseach and he announced his intention of talking to the Greens, the Independents and the PDs.
Mr Kenny pointed to the fact that the Government parties lost nine seats compared with the 2002 election while the alternative alliance had gained 20 and that close to 60 per cent of people had voted for change.
The PDs announced that the party chairman, Peter Wyer, had asked Health Minister Mary Harney to assume the functions and responsibilities of party leader until the formation of the next government. Ms Harney stepped down as leader last September and was replaced by Michael McDowell who has lost his Dáil seat.
No formal discussions have been held between any of the parties to date but soundings will be taken in the coming days. The Cabinet is scheduled to meet on Wednesday and that will provide an opportunity for Fianna Fáil and the PDs to assess the position.
While the Taoiseach has indicated his preference for a continuation of the current coalition, it is not clear whether he would be willing to allow Ms Harney to remain in Health.
During the election campaign she repeated on a number of occasions that it was her ambition to continue in the department and complete the job of reform that she had started.
Mr Ahern stressed the need for stability and that he will be seeking guarantees from the PDs and Independents or Greens that any government will last for five years.
The make-up of the Independents may mean that no such guarantees are possible and could ultimately push Mr Ahern in the direction of the Greens.
Two of the Independents, Jackie Healy Rae and Beverley Flynn, are former Fianna Fáil politicians, a third, Michael Lowry, is a former Fine Gael minister while two Dublin Independents, Tony Gregory and Finian McGrath, are socialists. Senior Fianna Fáil figures acknowledge that the group would not be nearly as cohesive as the four Independents who underpinned the 1997 to 2002 Fianna Fáil-PD coalition.
If it is not possible to tie at least three of the Independents into a firm commitment of long-term support, a coalition involving the Greens and the PDs may even be considered. Neither of the two smaller parties have ruled it out, although they would have wide policy differences in areas like health.
The Minister for Education, Mary Hanafin, stressed last night that Fianna Fáil would not entertain the idea of "shopping lists" from other parties or Independents but would negotiate on policies to produce a programme that would serve the country's interests.
The Labour Party leader, Pat Rabbitte, yesterday reiterated his position that he had made a commitment to the Irish people that he would not lead his party into government with Fianna Fáil at this point in history. "I intend to honour that commitment," he added. He was also adamant that he intended to stay on as leader of the party.
Mr Rabbitte has called a parliamentary party meeting for Wednesday to review the disappointing election performance which saw the party end up with one seat less. The party's national executive council will meet on Thursday to discuss the election outcome and to decide what strategy the party should adopt in the future.
While some senior Labour TDs have expressed the view that the party should seriously re-examine its alliance with Fine Gael, the Kildare South TD, Jack Wall, said delegates had voted by four to one to adopt the alliance strategy at its conference two years ago and it was disappointing to hear people now "whinging and crying" about that.
"We adopted a clear strategy and you are either a team player or you are not. If you are not, maybe you should be looking for a place on another team." he said, adding that Mr Rabbitte had his full support.