UPDATE 2 - Israeli PM Netanyahu seals controversial coalition deal

*UPDATES WITH HAMAS REACTION.

By Kaamil Ahmed

JERUSALEM (AA) – Israeli Prime Minister Benjamin Netanyahu signed a deal on Wednesday that makes hard-line settler politician Avigdor Lieberman Israel's new defense minister and brings his six-seat party into the coalition government.

The deal followed a meeting where Netanyahu agreed to one of Lieberman's key demands to fund pensions for Israelis who migrated from the former Soviet Union, according to Israel Radio.

Lieberman's Yisrael Beitenu colleague Sofa Landver will also join him in the cabinet as the Minister for Immigrant Absorption. Both are scheduled to be sworn-in on Monday.

The deal has strengthened Netanyahu's fragile coalition government, which previously relied on a single-seat majority, after the Knesset reopened for its summer session this week.

According to Israel Radio, Netanyahu and Finance Minister Moshe Kahlon agreed to add 1.4 billion shekel ($360 million) to the pension fund, which was half the figure initially demanded by Lieberman.

Lieberman has frequently been accused of inflammatory statements against Palestinians and has also reportedly been pushing for the death penalty for Palestinians found guilty of killing Israelis in attacks.

In response to the announcement, Hamas said in a statement that “choosing Lieberman as the army minister indicates that the occupation’s racism and extremism is on the rise”.

Previous Defense Minister Moshe Yaalon resigned from government and the Knesset last Friday amid reports that his job had been offered to Lieberman. Yaalon had said that Netanyahu's government was being overrun by extremists.