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Trying to resolve the first crisis of his coalition government, Israeli Prime Minister Ehud Barak negotiated today with a key faction that has threatened to quit unless he meets its budget demands, possibly undermining Israel's peace talks with Syria and the Palestinians.

The ultra-Orthodox Shas party, the second-largest in Barak's coalition, is seeking millions of dollars in state funds to keep afloat its scandal-ridden private schools.

After 30 hours of marathon negotiations, the two sides appeared close to compromise. Shas is expected to get an extra $25 million.

Political commentators said they expected the dispute to be settled in time for Thursday's key vote on the 2000 state budget.

If Shas quit the coalition, Barak would still have had enough votes to keep governing, with the expected support of Arab and secular parties outside the coalition.

However, Barak has said since taking office in July that he needs a broad coalition for making peace with Syria, Lebanon and the Palestinians. Without Shas, his coalition in the 120-member parliament would shrink from 68 seats to 51.

After a break of nearly four years, negotiations between Israel and Syria resumed earlier this month. A second round of peace talks with Syria is scheduled to begin Monday in West Virginia.

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