Israeli Prime Minister Ariel Sharon and new Labour party leader Amir Peretz have agreed to hold elections between late February and March.
Mr Peretz said that he hoped an exact date would be set by next Monday, when parliament is expected to discuss bringing forward elections.
Elections were due to take place in November 2006, but Labour's planned departure from government would cause Mr Sharon to lose his government majority.
Labour had joined Mr Sharon's right-wing government to push forward Israel's Gaza pullout, which it completed in September, as well as peace talks with the Palestinians, which are stalled by violence.
Mr Peretz (53) shares predecessor Shimon Peres's dovish views on Israel's conflict with the Palestinians, but his call to restore social welfare policies and reverse reforms favoured by investors have rattled Israeli markets that only recently pulled out of recession.
Recent opinion polls showed that Mr Peretz's ousting of veteran Mr Peres in a party poll had given Labour a slight lift but not enough to unseat Mr Sharon, a 77-year-old former general who twice swept to power pledging to crack down on a Palestinian revolt that erupted in 2000.