(Updates with Olmert statement, background)

By Dan Williams

JERUSALEM, June 15 (Reuters) - Former Prime Minister Ehud Barak will be named Israel's defence minister next week in a reshuffle of the coalition cabinet rushed through in response to Palestinian factional warfare in Gaza, officials said on Friday. They said ministers agreed to nominate Barak, who this week replaced the current defence minister, Amir Peretz, as leader of the Labour Party. Labour is the main ally of Prime Minister Ehud Olmert's Kadima party in the coalition government.

The appointment will go to parliament for formal approval on Monday, the officials added.

"They decided that, given the situation in the Palestinian Authority, we need an experienced defence minister as soon as possible," an Olmert aide said on condition of anonymity.

Islamist Hamas seized control of Gaza after violently ousting the Western-backed Fatah of President Mahmoud Abbas, spurring concern that cross-border violence could escalate.

Though it has regularly hunted down Hamas during more than 6 years of Israeli-Palestinian fighting, the Jewish state has made clear it is not seeking a major confrontation in Gaza now.

Israeli leaders have instead called for international intervention, perhaps in the form of peacekeepers, to prevent Hamas building military force in the congested and impoverished strip. The response abroad has so far been lukewarm.

Barak, a decorated former commando and armed forces chief, built his comeback on Labour chagrin at the way Olmert and Peretz, who both lack military pedigrees, handled last year's Lebanon war.

But Barak's speedy assimilation into Olmert's cabinet will no doubt raise Labour hackles. On the campaign trail, Barak pledged to give Olmert an ultimatum to resign over the war's failures or face a Labour walkout from the government.

"Days into his new tenure, and Barak has already become a master of the zig-zag," said Aviv Drucker, political commentator of Israel's Channel Ten television.

An Olmert aide said that Peretz, a former trade boss, was expected to remain in the cabinet without a portfolio for now. A Peretz confidant said that he had tendered his resignation as defence minister but that his future in the cabinet was unclear.

Barak has pledged to use his term at the Defence Ministry to build up Israeli forces ahead of any future conflict with arch-foes Iran and Syria.

AlertNet news is provided by