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His often-squabbling coalition ranged from Christian Democrats to Communists, and Prodi ultimately failed to command the loyalty of the radical left, who balked at giving unquestioned backing to Italy's traditional pro-U.S. policies.

President Giorgio Napolitano asked Prodi to stay on in a caretaker role while he sounds out political leaders to determine who might muster enough support for a parliamentary majority, thus avoiding the need for new elections well ahead of their 2011 schedule.

Prodi was smiling in the backseat of a limousine as he left the presidential palace and made no comment to reporters.

Prodi aides did not rule out the possibility that Napolitano would ask Prodi to try to form a new government, and from first discussions among some allies, support for another Prodi government seemed to be building.

"We are ready to reconfirm our full faith in the Prodi government," said Dario Franceschini, a leader of the Olive Tree, the largest grouping in Prodi's coalition.

The loss, by two votes in the Senate, came on a bid by Foreign Minister Massimo D'Alema to rally the partners in the coalition. He was hoping the allies would close ranks in the vote on foreign policy, including Italy's military mission in Afghanistan, but his bid backfired.

"Foreign policy involves the role and image of Italy in the world and the life of our soldiers committed to international peace mission," said conservative opposition leader Silvio Berlusconi, whom Prodi had defeated in elections in April. The loss meant Prodi had the "obligation" to resign, Berlusconi insisted.

Berlusconi has been predicting for months that the premier's government would collapse because of the radical leftists in the coalition. Prodi took office May 17 after assembling a coalition with a comfortable margin in the lower Chamber of Deputies but a razor-thin edge in the Senate.

It was not clear if Berlusconi would make another bid for power. The billionaire media magnate had a pacemaker implanted in December.

Italy has 1,800 troops in Afghanistan, part of the NATO mission, who were sent in by Berlusconi. The current government has agreed to keep the troops there, sparking opposition from its own Communist allies.

A decree refinancing the Afghan mission is awaiting parliamentary approval. It was passed by the Cabinet last month, but three radical leftist ministers walked out of the room to signal their opposition.

Government decrees need to be converted into law by parliament. In this case, parliament has until the end of March to convert it.

A centrist opposition leader, Pier Ferdinando Casini, said it would be tough for Prodi to try to put together a new government.

"He pretends not to see" his problems in mustering a majority, Casini said in an interview on state TV. "If he wants to go ahead, good luck" in trying to form a new government, but "the country is paying the price," Casini said.

Prodi is an economist and former head of a now defunct Italian state industrial conglomerate who is generally pro- Vatican, although recent approval by his government for a proposed law to give some legal rights to same-sex and other unmarried couples angered the Catholic Church.

His approval rating had dropped in recent months, after a brief tenure which saw him wage an uphill battle to liberalize Italy's economy. He kept his campaign pledge to withdraw all of Italy's troops from Iraq by the end of 2006.