By Allyn Fisher-Ilan
JERUSALEM (Reuters) - Prime Minister Benjamin Netanyahu's biggest coalition ally stepped up threats on Wednesday to quit Israel's government in a widening dispute over its demand to curtail military draft exemptions for ultra-Orthodox Jews.
Military service is a highly emotive issue in Israel, where most men and women start a two- or three-year service at the age of 18 and many are subsequently called up for reserve duty into their 40s. Many fervently Orthodox Jews are exempted so they can pursue religious studies, angering the more secular majority.
The issue has rocked Netanyahu's 3 1/2-year-old government ahead of an August 1 deadline, when a law granting blanket draft exemptions to ultra-Orthodox youths expires following a high court ruling that it was unconstitutional.
Netanyahu appeared to ease the tension by declaring support for draft reform on Sunday after the centrist Kadima party threatened to bolt from his government and 20,000 Israelis marched in Tel Aviv to protest at draft exemptions.
He and the Kadima leader, Vice Prime Minister Shaul Mofaz, named a team to draft a new policy headed by Yochanan Plesner of Kadima, who published recommendations last week to slash the number of exemptions, and Deputy Prime Minister Moshe Ya'alon, a former general in Netanyahu's right-wing Likud party.
A new dispute flared on Wednesday, however, over Plesner's demand to set a quota for exemptions and impose stiff penalties on any violators. Plesner's report called for reducing the exemptions from a current 50,000 to 1,500 by 2016.
Netanyahu's rightist allies objected, apparently wary of angering influential religious leaders opposed to draft reform. Mofaz responded by saying he had been authorized by Kadima members to decide on "a possible departure from the coalition".
"If we don't wind up with legislation to bring before the cabinet, we cannot continue with this partnership," said Mofaz, who only just joined Netanyahu's coalition in May in a maneuver that helped avert an early national election.
Netanyahu and Mofaz failed to bridge their differences in talks on Wednesday night, Israeli media said.
Kadima has 28 seats in Israel's parliament. Its departure would not immediately undermine Netanyahu's government but could seriously weaken his large coalition and move up national elections, now expected to be held in November 2013.
Ya'alon accused Kadima of "creating a deliberate impasse," telling reporters the government could survive without meeting the August 1 deadline by following the current exemptions policy pending new legislation.
"If the law is not passed by August 1, we shall implement the necessary military directives," Ya'alon said.
Mofaz wants the new draft legislation approved in parliament before it adjourns for summer recess this month. Reform of the military draft was one of the main promises Kadima made when it joined Netanyahu's rightist-dominated government in May
Military service is a rite of passage for many Israelis, who view the army as a core element of national identity and the essential bulwark against the country's Arab and Islamic adversaries since its founding in 1948.
But secular Israelis have long complained that their ultra-Orthodox compatriots have never shared the burden of national defense.
(Editing by Mark Heinrich)