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JERUSALEM — Prime Minister Ariel Sharon’s broad-based coalition collapsed Wednesday when Cabinet ministers from the moderate Labor Party resigned in a dispute over funding for Jewish settlements, threatening to push Israel into a bitter election. 

The crisis ended an uneasy 20-month “unity government” formed as a common front against the Palestinian uprising, and could sabotage U.S. efforts to win support for a peace plan. 

Sharon told parliament he would continue to lead the country, suggesting he would try to govern with a narrow coalition of far-right and religious parties rather than call early elections. 

The crisis was precipitated by Sharon’s rejection of Labor Party leader Binyamin Ben-Eliezer’s demands to cut $145 million in funds for Jewish settlements in the $57 billion 2003 state budget. Compromise proposals failed and Ben-Eliezer resigned from his post as defense minister, followed by the rest of Labor’s Cabinet ministers. 

Under Israeli law, the six resignations only take effect within 48 hours, leaving room for last-ditch maneuvers — but politicians from both sides predicted Sharon’s broad-based coalition was at an end. 

“We must fight terror, but this is the day when we have to present a diplomatic horizon,” Ben-Eliezer said, referring to peace talks with the Palestinians. “The prime minister is unable to present a diplomatic horizon.” 

Critics accused Ben-Eliezer of partisan politics, noting that in polls ahead of Labor’s Nov. 19 leadership primary he trails two more dovish challengers, and leaving the government over a settlement dispute could boost his standing. 

“It’s the height of irresponsibility,” said Education Minister Limor Livnat of Sharon’s Likud Party. 

The budget was put to parliament after the Labor ministers resigned, and it passed with the support of parties outside the coalition — as expected — by a 67-45 vote; it must pass two more readings in coming weeks before it is final. 

Several officials involved in the last-minute talks said Foreign Minister Shimon Peres, who led Labor for much of the past two decades and has been a key supporter of the unity government, tried to persuade Ben-Eliezer to back down. Peres then resigned along with Ben-Eliezer and four other Labor Party ministers.