The Austrian government is poised to include the far-right Freedom Party, despite protests from some citizens and threats of isolation from some allies. Following this background report, Austrian and Portuguese diplomats discuss the situation. Portugal currently holds the rotating presidency of the European Union.

MARGARET WARNER: This is the man who is causing a rupture between Austria and its European Union partners, Jeorg Haider. The far-right leader, who turned 50 at a posh ski resort last week, heads Austria's insurgent Freedom Party. It has campaigned on an anti-immigrant, populist platform that Haider dubbed the Contract with Austria.

JEORG HAIDER: I don't belong to the political establishment in Europe. I am the leader of new movement which comes from outside, and it's not among the establishment of the political parties in Europe, and they are afraid of being forced to reduce their power, and that is the opinion that I have.

MARGARET WARNER: Haider's party made its best-ever showing in parliamentary elections last fall, coming in second with 27 percent of the vote. On Tuesday, after months of negotiations, the Freedom Party and the conservative People's Party announced they were forming a coalition government. Haider will not be in the cabinet himself, but other members of his party will. Haider, whose parents were Nazi Party members when Austria was annexed to the Third Reich, is currently governor of the Austrian province of Carinthia.

He's become notorious over the last decade for comments he's made about Nazi Germany. In 1991 he praised the Third Reich for its "orderly employment policy." Four years later, he described former Austrian members of the Waffen SS Nazi Corps as "decent people of good character who also stick to their convictions." He later apologized for those remarks.

Haider's backers say they support him not for his views on Nazi Germany, but for opposing immigration, advocating more government spending on family programs, and taking on the entrenched political establishment in Vienna. He also opposes further expansion of the European Union, saying it would open the door to too many refugees. Overseas reaction to the Freedom Party's new prominence has been harsh. EU prime ministers yesterday threatened to freeze political relations with Vienna and downgrade the status of Austrian ambassadors in European capitals.

SEIXAS DA COSTA, Government of Portugal: (Translated) The rules and protection of minorities and the fight against racism and xenophobia are no longer purely internal matters of a country, particularly when a country is part of a community of states. Europe is no longer just an economic construction. We are a community with values and principles.

MARGARET WARNER: In Tel Aviv, Israelis protested outside the Austrian embassy, and Prime Minister Ehud Barak vowed to pull Israel's ambassador to Vienna.

EHUD BARAK: We here in Israel, and I believe the whole Jewish people, will never be able to accept a kind of "no response" or "not tough enough response" to the re-emergence of the neo-Nazi figures and parties into the leadership of Western Europe.

MARGARET WARNER: A White House spokesman said the U.S. would "examine carefully the range and depth of our bilateral relationship, and consider similar steps to those identified by the Europeans." International isolation would not be new for Austria. When Kurt Waldheim, the former U.N. secretary-general who had hidden his Nazi past, was elected president of Austria in 1986, the United States and other countries froze diplomatic relations with Vienna. In Vienna last night, some 15,000 people demonstrated outside the People's Party headquarters in protest. But throughout the latest controversy, Haider has remained defiant.

JEORG HAIDER: Our critics, they don't know how the government -- who forms the government. They don't know who belongs to the government -- they don't know what's the program of this new government. But they are making protests. I think it is stupid. The Austrian people are totally upset about this reaction.

MARGARET WARNER: Austria's president formally approved the new coalition government today, after the two parties signed a declaration renouncing Austria's Nazi past and promising to adhere to European ideals of tolerance and the rule of law.