Addressing a special session of parliament, opposition chief Benjamin Netanyahu called on Olmert to step down and called for new polls after an interim government inquiry blasted his handling of the 34-day war.

"Our country needs new leadership," said the leader of the right-wing Likud party that surveys show would win new elections.

"Those who failed at war cannot be those who correct the failures... We have to go back to the people and allow them to express themselves," he said.

Turning to Olmert, who attended the session, Zahava Gal-On of the leftist Meretz party said: "The Winograd report does not leave any choice to you and the defence minister -- you must resign."

"All of this government failed and the entire Olmert government must go," she told the half-empty chamber.

Olmert, who has resisted enormous public pressure to step down after the release of the report on Monday, was not expected to address the session, with Deputy Prime Minister Shimon Peres due to defend his beleaguered government.

Late Thursday, thousands were expected to echo the resignation calls at a rally in Tel Aviv's Rabin Square at the first mass public protest after the publication of the damning report.

"This demonstration is an occasion for people to show a red card to Ehud Olmert and (Defence Minister) Amir Peretz and tell them that they should step down," reserve General Uzi Dayan, an organiser of the protest, told army radio.

Olmert has admitted to grave failures in the handling of the war, but has said that resigning would be irresponsible and has vowed that his government would work to correct the mistakes uncovered by the inquiry.

On Tuesday the beleaguered premier put a lid on a rebellion within his Kadima party despite a call to quit by top aide Foreign Minister Tzipi Livni and the resignation of the chief of the party's parliamentary bloc.

"The prospect of a putsch within Kadima's ranks has burst like a soap bubble, along with the fear of a ministerial mass desertion that could topple Olmert's government," wrote the liberal Haaretz newspaper.

Following a late-night meeting of Kadima's 29 deputies in the 120-seat Knesset, Peres emerged saying Olmert had received "unprecedented support" from the MPs after only two backed Livni's call for Olmert to step down.

"He may be a failed prime minister, but he is a fairly good politician," wrote the tabloid Maariv.

Livni failed to rally support within Kadima by not backing her call for Olmert to step down with her own resignation, observers said.

And a senior aide to the premier warned that Thursday's Tel Aviv rally was unlikely to persuade him to leave his post even if it attracts tens of thousands of people, as hoped by the organisers.

"The prime minister cannot react to polls and demonstrations," Tal Silberstein, a senior advisor, told army radio.