TOKYO: Japan's new ruling party is forming a coalition government with two smaller groups, despite differences on foreign policy and on the presence of U.S. Marines on Okinawa, party leaders announced Wednesday.

The agreement paves the way for Democratic Party of Japan leader Yukio Hatoyama to put together a new Cabinet. Hatoyama is almost certain to become Japan's next prime minister in a parliamentary vote scheduled for next Wednesday.

The left-of-center Democrats won a sweeping victory in elections on Aug. 30 for the 480-seat lower house of parliament, giving them a simple majority. But they need the coalition with the smaller parties to control the less powerful upper house.

"We are at the starting line for a new government," Hatoyama told a news conference after signing the coalition agreement.

Hatoyama's party will align with the Social Democratic Party and People's New Party to replace the outgoing Liberal Democrats, a pro-big business and staunchly pro-U.S. party that had governed the country for more than 50 years.

Democratic Party of Japan spokesman Toshiaki Oikawa said the secretary-general of each party attended talks Wednesday at which they largely worked out their differences on defense issues and foreign policy.

The parties have disparate views on what to do about an agreement backed by the outgoing administration to close the U.S. Marine airfield in the crowded city of Futenma and find a new location for it elsewhere on the southern island of Okinawa — an issue that could complicate the new government's relations with Washington.

The Democrats have opposed the current plan, with many in the party saying the replacement base should be moved off Okinawa or out of Japan altogether. The Social Democrats want the base moved out of Japan and want to re-examine the overall security alliance under which 50,000 U.S. troops are stationed in Japan. Washington has strongly opposed the idea of moving the airfield off Okinawa.

That issue and the question of whether — or how soon — Japan should end its refueling of U.S. ships in the Indian Ocean in support of the U.S.-led coalition in Afghanistan had stalled talks between the three parties, which have already coordinated their stances on measures to fight climate change, plans to freeze a tax hike planned by the outgoing Liberal Democrats and on a review of medical care for the elderly.

Oikawa declined to give details about how they reached a compromise.

Katsuya Okada, a Democratic Party leader who is expected to become foreign minister, said the parties wanted to get as close on policy issues as possible before taking over the government next week.

"We have reached a good agreement. Now we can move on to the next step," Okada said after striking the deal Wednesday.

Media reports have said 77-year-old veteran lawmaker Hirohisa Fujii is likely to become finance minister, while Naoto Kan, the Democratic Party's acting president, is to head a new agency in charge of setting government policies and strategies.

Social Democrat leader Mizuho Fukushima and People's New Party chief Shizuka Kamei are also expected to get Cabinet positions.

In keeping with a campaign promise to build closer ties with Asia, while maintaining close ties with the U.S., Hatoyama and Okada held talks with visiting Chinese Vice Foreign Minister Wu Dawei earlier Wednesday.

In Beijing, Chinese Premier Wen Jiabao said China anticipates stronger relations with Japan's new government and is ready to boost cooperation between Asia's two largest economies.

Wen said he appreciates Hatoyama's "active attitude" toward relations with China. He added that China expects to work with Japan to enhance mutual trust and strategic relations, according to remarks posted on the central government's Web site.

China is Japan's largest trading partner, while Japan is a top investor in China.