OTTAWA–Liberals MPs and the party executive today confirmed Michael Ignatieff as their interim leader.

The national executive officially appointed the Toronto MP as leader this afternoon, following an endorsement by the Liberal caucus this morning in a closed door meeting said to be marked by an inspiring display of unity.

The high point of the caucus gathering was an embrace between Ignatieff and Bob Rae after Rae explained why he was stepping aside in the leadership race on behalf of his old friend Ignatieff, MPs said.

"It was really tough to keep a dry eye," MP Martha Hall Findlay told reporters afterwards.

The Liberals' national executive announced Ignatieff's installation as interim party chief after consultations with riding association presidents and various ex-officio members across the country.

Ignatieff won't be ratified as full-time leader until the party's convention in May in Vancouver.

Liberal MPs expressed deep relief this morning that the party was spared a possibly damaging split after Rae announced yesterday that he was dropping out of the leadership contest. Rae's decision opened the way for a welcome outpouring of unity in a party that has spent the last few years trying to recover from the bitter divisions spawned by the clash between former prime ministers Jean Chretien and Paul Martin.

Now that Ignatieff has seized his long-sought prize of the Liberal leadership, it raises fresh questions about the future of the opposition coalition that has vowed to defeat the Conservatives next month.

The fate of the Liberal-New Democrat coalition will be among the pressing issues facing Ignatieff as he prepares to take over the leadership of a party battered by cash woes, two lost elections and dismal poll numbers.

Late yesterday, Ignatieff paid tribute to the two candidates who had pulled out of the race and hailed the party for responding "quickly to changing circumstances to offer stability and leadership to Canadians."

The 61-year-old Liberal MP for Etobicoke-Lakeshore was assured of the leadership yesterday after Rae — the last rival candidate in the race — dropped out, conceding he didn't have enough support to win in the party's stripped-down contest that left little time to sign up new backers.

Ignatieff was the runner-up in the 2006 contest that saw Stéphane Dion elected party leader.

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 Conservatives defeated, sparking a new election or paving the way for a Liberal-led coalition to take power.

Ignatieff, who launched his leadership bid by promising to "outwit and outthink" the Conservative government, faces a key decision over the coming weeks, whether or not to remain in the coalition with the NDP and defeat the government.

New Democrat MPs and some in the Liberal ranks, including Rae, have been adamant that Harper's Conservatives must be toppled no matter what is in the Jan. 27 budget. But Ignatieff has been lukewarm to the idea of a coalition, and has suggested he would prefer to see the budget before acting.

On Sunday, he said "coalition if necessary but not necessarily coalition."

"I think it's very important for Canadians to have the coalition option so that if Mr. Harper presents a budget which is not in the national interest we can present to Canadians a coalition alternative to spare us a national election," he told CTV's Question Period.

Yesterday, Harper tried to fracture the coalition by extending an olive branch to the Liberals, saying he's hoping the new leader will "be willing to sit down with me" and talk about the economy.

"I'm optimistic that the next leader of the opposition may want to look at different kinds of arrangements in the best interests of the country," Harper said in an interview with CBC News.

"It's in the interests of the government to find a consensus, certainly among the federalist parties ... to find things we can agree on in the short-term to make sure we do whatever we can to help the economy, to keep people working."

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While willing to talk, the Liberals doubt that the Prime Minister is serious about working with the opposition.

"You'll pardon us if we have just a touch worth of scepticism from an invitation from Mr. Harper," MP John McKay said on his way into the caucus meeting.

He said the Conservatives should start by opening the books so the opposition can see what the fiscal situation really is. McKay said that, rather than the small budget surpluses forecast by the Harper government, Ottawa is facing budget deficits of between $6 billion and $15 billion.

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