JERUSALEM - Israeli Prime Minister Ehud Olmert on Wednesday staved off a threat by a key coalition partner to bring down the government, giving him at least a few more months to pursue peace agreements with the Palestinians and Syria. But the last-minute political understanding could bring his political demise later this year.

In a pre-dawn deal reached early Wednesday, Olmert's Kadima Party told the Labor Party that it will hold primary elections by Sept. 25. The primary is likely to oust Olmert as Kadima leader.

The deal came a month after Olmert's popularity was dealt a severe blow by a U.S. businessman's testimony in a corruption case against the Israeli leader. The businessman said he handed hundreds of thousands of dollars to Olmert in cash-stuffed envelopes, in part to finance a lavish lifestyle that included a penchant for fancy hotels and cigars.

The Labor-Kadima agreement prompted Labor to rescind its support for a motion to dissolve the parliament which had been expected to pass later Wednesday.

Labor's leader, Defense Minister Ehud Barak, threatened after last month's dramatic court testimony to force new elections unless Olmert resigned or agreed to Kadima primaries.

The compromise allowed both Olmert and Barak to save face. Olmert can remain in office and keep his coalition intact, while Barak can tell supporters that he is forcing Kadima to change its leader.

Kadima officials say Olmert has not ruled out running in the party primary, hoping to clear his name after a cross-examination of the American businessman, Morris Talansky, slated for July 17. But opinion polls show Olmert to be extremely unpopular - both within the party and among the general public - and unlikely to win.

His likely successor would be Foreign Minister Tzipi Livni or Transportation Minister Shaul Mofaz.

Livni, the chief peace negotiator with the Palestinians, is expected to push forward with U.S.-backed efforts to reach a final peace deal before President Bush leaves office next January. The more hawkish Mofaz, a former military chief, would most likely slow down or break off the talks with both the Palestinians and Syria.

The Labor-Kadima deal, which was overwhelmingly approved by Kadima members later Wednesday, came after hours of intense talks overnight. It canceled the dispersal vote in parliament just hours before it was scheduled.

Although Wednesday's vote was considered only a preliminary move under parliamentary rules, Olmert had threatened to fire any government minister who supported the motion.

Such a move would have left Olmert without a parliamentary majority and begun a process that was expected to bring elections by the end of the year. Currently, elections are scheduled in 2010.

Speaking on Israel Radio on Wednesday, lawmakers Tzahi Hanegbi of Kadima and Eitan Cabel of Labor said the primary would be completed by Sept. 25. But Cabel said he was concerned that Israel's political and security volatility could upset the process and somehow leave Olmert in place.

Political analyst Hanan Crystal said the looming Kadima primaries will not prevent Olmert from pushing the international community for tougher action against Iran for its nuclear program. Israel believes Iran is pursuing nuclear weapons.

Olmert will also persist in efforts to resume official peace talks with Syria. The two nations are currently holding indirect talks through Turkish mediators. Israel also could launch a broad military campaign in Hamas-controlled Gaza if a fragile truce doesn't hold.

"Ehud Olmert has what he wants, the big political exit he wanted, with Iran, with Syria and with Gaza," Crystal told Israel Radio. "He is the legitimate prime minister for the entire summer."