OTTAWA — Michael Ignatieff is poised to become the new leader of the Liberal party after rival Bob Rae bowed out of the leadership race this afternoon.

Rae gave a gracious exit from the race that he entered just three weeks ago, pledging his "full and unqualified" support to Ignatieff and urging his supporters to do the same.

"He will make a great prime minister," Rae told a news conference this afternoon.

The former NDP premier of Ontario insisted he had no regrets leaving the leadership contest, saying that "extraordinary" events on Parliament Hill had forced the Liberal party to move fast to find a permanent replacement for Stephane Dion.

"We cannot control the flow of events," he said. "It's just politics. It's not the end of the world."

He spoke glowingly of Ignatieff, saying the former academic will bring "tremendous energy" to the job of party leader.

Ignatieff, in a one-paragraph statement posted on his website, paid tribute to Rae and welcomed his support.

"Bob Rae has dedicated his life to serving Canadians and I have always felt privileged to count him as a friend and colleague. His decision today reflects his commitment to the unity of our party and our purpose in these challenging times.

"I am grateful for his support, and I look forward to continuing the work of rebuilding the Liberal Party with him, and all Liberals, in the weeks and months ahead."

Rae said his decision to quit was sealed this morning when the party's national executive decided on a narrow consultation to pick an interim leader, rather than polling the grassroots as Rae had demanded.

Rae realized that he little chance of winning under such a scenario.

With Rae and Liberal MP Dominic LeBlanc now out of the race, Ignatieff will be acclaimed as "interim" leader of the party, with that selection likely to be ratified at a party convention in May in Vancouver.

Yesterday, Rae, the former NDP premier of Ontario, had argued strongly against a "coronation" and refused to bow to growing pressure to drop out of the race, like LeBlanc did.

"I don't think coronations are generally very successful in political parties . . . most people believe it's better to have a contest, it's better to have a choice," a defiant Rae said.

"I think it's appropriate for both of us to be running," he said.

That's why party members were shocked to hear the news today that Rae was abandoning his bid for the leadership.

"It's a surprise to us all," one Liberal said this morning.

"I think Bob concluded that the support in the party was not there. I think it's that simple," he said.

Rae told close advisors this morning and planned a wider teleconference call to advise his supporters of his decision. which he reached after the party's executive council last night rejected a wider consultation with the grassroots of the party on the leadership issue.

The executive chose instead to consult riding association presidents and various ex-officio members of the party, including the heads of the women's and aboriginal commissions. It was a decision that vexed Rae and his supporters, given "you can organize a conference call with confidential PINs in half an hour," said one.

"We're repeating massive mistakes," said one senior Liberal.

"Michael could've well won, but leaping for the reins of power without giving the grassroots a voice - these are people who are going to do your organizing and legwork for the party. It says the party can't move, can't be nimble. It's very dismaying."

In the end, Rae decided that party unity was more important than waging a campaign of the grassroots versus the elites of the party, said the source.

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"Do you wage a pitched battle that would be extremely divisive at a time where we have a national and economic crisis, and layers of political crisis still to work through? That's the call you make at the end of the day."

The Liberals are in a rush to have a new leader in place by the end of January, when a key budget vote could see the minority Conservatives defeated, sparking a new election or paving the way for a Liberal-led coalition to take power.

"At this critical time in our country's history, the National Executive, in consultation with caucus, is now tasked by our party's constitution with selecting an interim leader who will preside over a very volatile minority Parliament, and a possible general election," Doug Ferguson, Liberal party president, said in a statement.