Ehud Barak has joined Ariel Sharon's unity Israeli government.
Mr Barak's U-turn was greeted with criticism from friend and foe.
Moments after his crushing prime ministerial election defeat 10 days ago, the Labour leader said he would retire from politics, at least temporarily.
Mr Barak was heckled repeatedly when he addressed party activists.
The former army chief, who will be defence minister in the new government, said he changed his mind because of the difficult security situation the nation faces.
"Emotion says leave, but common sense says stay," he said.
Labour's elder statesman Shimon Peres, a Nobel Peace Prize winner, accepted the post of foreign minister.
Labour has agreed to Mr Sharon's demand the new government try to negotiate only a partial peace deal with the Palestinians.