JERUSALEM – Prime Minister designate Benjamin Netanyahu reached a preliminary agreement Tuesday that would bring the centrist Labor Party into his coalition, an important step toward moderating the emerging government.

Labor Party activists were set to vote later Tuesday on the deal, which calls on the government to pursue peace negotiations with the Palestinians. However, the vote was expected to be close and approval was far from certain.

Labor's leader, Defense Minister Ehud Barak, drafted the deal with Netanyahu. But half of the party's lawmakers object to teaming up with Netanyahu because of his long-standing opposition to peace efforts.

Netanyahu has been a vocal critic of the outgoing government's peace talks with the Palestinians, saying conditions are not ripe for a deal.

But he appears to be softening his line as he courts moderates. A broader coalition would bring stability to the government because it would not be hostage to the demands of smaller partners. It also would enjoy more international credibility with some members committed to peace talks.

Netanyahu has so far wrapped up deals with two hard-line coalition allies. Without Labor, he is projected to have no more than 65 of parliament's 120 lawmakers in his coalition.

Under the proposed coalition deal with Labor, Israel would draft a comprehensive plan for Mideast peace, resume peace talks and commit itself to existing peace accords, Labor officials said.

Barak would continue serving as defense minister and other veteran Labor lawmakers would be assured ministerial jobs.

The deal also calls for enforcing the law toward illegal Palestinian construction — the most explosive being in disputed Jerusalem. Israel plans on demolishing dozens of Arab homes in east Jerusalem, claiming they were built illegally.

But Palestinians say it is virtually impossible to get a building permit and that the demolitions are meant to cement Israeli control over that traditionally Arab section of the city.

Israel captured east Jerusalem in the 1967 Mideast war and annexed the area. The annexation is not internationally recognized, and the Palestinians claim the area as a future capital. U.S. Secretary of State Hillary Rodham Clinton recently called the demolitions "unhelpful."

Barak initially declared the party would serve outside the government as a "responsible, serious and constructive opposition."

But with his own personal fortunes inside the party in question and Netanyahu eager to soften the hard-line edge the current coalition lineup projects, Barak has switched gears. He says Israel would be better served by a broad government including Labor than a narrow coalition of hard-liners.

Labor dominated the country's political and economic life for the first half of Israel's history and was the party that signed peace accords with the Palestinians and Jordan. But its fortunes have sagged and its presence in parliament was whittled down from 19 seats to just 13 in the Feb. 10 elections.

Barak's about-face has sparked a rebellion among more dovish Labor lawmakers who say the party would serve as a fig leaf for a hard-line government. They say they will not be bound by any coalition agreement because Barak entered into negotiations without their approval.

It is not clear Barak would survive politically if the vote goes against him. He enjoyed high popularity ratings during the recent Gaza war, but is seen by some as a political liability and could be ousted from Labor's chairmanship.

Alternatively, he could leave Labor and remain defense minister under Netanyahu — something he has said he would not do.

Coalition talks have so far yielded two other agreements, with the ultranationalist Yisrael Beiteinu Party and the ultra-Orthodox Jewish Shas. Both take hard lines on peace talks.

If Labor joins the government, it would not immediately affect a tentative deal giving the foreign minister's job to Yisrael Beiteinu's head Avigdor Lieberman, who has drawn criticism for proposing that Arab citizens of Israel sign loyalty oaths or lose their citizenship.

Labor is not seeking the foreign minister's post. But if it succeeds in softening the government's platform, the more moderate Kadima Party led by current Foreign Minister Tzipi Livni could agree to join and possibly retain her post.

So far, she has refused to team up with Netanyahu. She wants him to commit to peace talks or to let her serve as prime minister for half of the government's term.

Kadima is the largest party in parliament, with 28 seats. But Netanyahu was designated to be prime minister because more lawmakers say they would support him over Livni.

Netanyahu has until April 3 to form his coalition. He hopes to take office next week, replacing Ehud Olmert, who announced in September that he would resign to battle a series of corruption allegations.