MPs in the centre-left party, Olmert's main coalition partner, gathered to discuss the 2007 budget, but the focus switched to a state commission, Israel's most authoritative type of inquiry, to examine failures of the 34-day war.

Israel unleashed a punishing offensive against Hezbollah on July 12, vowing to retrieve two soldiers seized by the Shia militant group in a cross-border raid the same day and to stop it from firing rockets into the Jewish state.

But soldiers Ehud Goldwasser and Eldad Regev remain missing and Hezbollah caught Israel unaware with an unprecedented 4,000 rocket attacks that killed 41 civilians right up to August 14, when a UN-brokered truce took effect.

Most of Labour's 19 MPs have already demanded a state commission rather than the more limited public inquiry ordered by Olmert, whose centrist Kadima party won a narrow election victory in March polls.

Olmert's decision, unveiled in a televised address that stressed the successes of the war, has been heavily criticised from both the left and right.

But Peretz is now publicly at odds with Olmert, who has flatly rejected any question of muck-raking at a state commission level, leaving aides to leak their annoyance to the press under the shield of anonymity.

"Peretz continues to duck his responsibilities, just like he has done since the end of fighting in Lebanon. Politically speaking, his behaviour is contemptible," the Yediot Aharonot daily quoted one Olmert aide as saying.

The spat made headlines in the country's two biggest selling newspapers, Yediot and the tabloid-style Maariv. "Olmert's Aides: Peretz Has Lost His Mind" and "Olmert's Aides: Peretz's Behavior Dumb" they cried, respectively.