Parliament's Finance Committee voted 10-9 in favour of the 2005 budget, sending the package to the full legislature where Sharon faces a tough battle for final approval next week against ultranationalists opposed to ceding an inch of occupied land.
Under law, if the 264.5 billion shekel ($62 billion) budget is not passed by March 31, a general election must be held in late June, a month before the Gaza withdrawal is due to begin.
An early national ballot could put Sharon's "Disengagement Plan" on hold -- or possibly lead to it being shelved altogether -- while complicating any new peace moves with the Palestinians.
Committee approval of the budget followed fierce infighting in Sharon's rightist Likud party, which is sharply divided over his intention to evacuate all 21 Jewish settlements in Gaza and four of 120 in the West Bank.
The vote marked the crossing of another major hurdle for Sharon. But with rebellious Likud lawmakers vowing to vote against the budget, he is not guaranteed a majority when it comes before parliament next Tuesday.
As Sharon scrambles for legislative support from opposition parties, he is counting on broad public backing for his Gaza plan as well as Israelis' distaste at the idea of holding a third national election in four years. "I don't foresee elections because this budget will pass," Finance Minister Benjamin Netanyahu told Israel Radio.
Likud rebels on the Finance Committee had threatened to block the budget and it appeared Sharon would have had no choice but to boot them off the panel and replace them. But such a move could have torn Likud apart.
Under a compromise, Likud rebels agreed to back the budget in the committee in return for support from pro-Sharon Likud legislators in another parliamentary panel for a proposal, to be voted on Wednesday, to hold a referendum on the Gaza plan.
Sharon opposes a referendum, calling it a delaying tactic. Political commentators, while noting the compromise was approved over Sharon's objections, said the referendum proposal stood almost no chance of winning full parliamentary approval.
Sharon's coalition holds 67 of 120 seats in the Knesset but his margin has been jeopardised by the threat of about a dozen Likud deputies to reject the budget in protest at the Gaza plan.
A Gaza pullout would mark Israel's first removal of settlements from land the Palestinians want for their own state. Still, many Palestinians remain wary, seeing it as an attempt to trade impoverished Gaza where 8,500 settlers live in fortified enclaves for large swathes of the West Bank.