ROME (CNN) -- Caretaker Prime Minister Romano Prodi has admitted failure in his bid to form a new government, leaving a one-time communist as the leading contender to be Italy's next leader.

Prodi, whose center-left governing coalition collapsed last week after 2 1/2 years in power, informed President Oscar Luigi Scalfaro that his efforts to cobble together a new governing majority from among Italy's fractious political parties had been unsuccessful.

Prodi's Olive Tree coalition then nominated Massimo D'Alema, leader of the Democratic Party of the Left, as its candidate. D'Alema's party is the largest in parliament and has been part of Olive Tree.

On Friday, Scalfaro, who has been trying to resolve the political crisis without calling new elections, is expected to formally ask D'Alema to try to form a new government. But D'Alema himself sounded less than optimistic at the prospect.

D'Alema

"(The nomination) fills me with pride, but I don't know whether there is a way out of the crisis," he told reporters.

D'Alema was a member of the country's once-powerful Communist Party, which won about a third of Italian votes during its political zenith in the 1970s. The party has since split into several smaller parties, including the Democratic Party of the Left.

It was another of those parties, Communist Refoundation, that sunk Prodi's government by pulling out of the governing coalition after the prime minister proposed a budget that party hard-liners considered too austere.

While D'Alema has been a longtime power broker in Italian politics, he has previously insisted that his communist past would disqualify him from the nation's top political post.

"We are well aware of being the children of a lesser god," he once told Italy's Corriere della Sera.

In a possible breakthrough to solving the political standoff, a group of moderate communists led by Armando Cossutta indicated they would be willing to take part in a coalition that included both Olive Tree and the centrist UDR party.

Until now, Cossutta's forces had said they wouldn't participate in any government with the UDR, which is led by outspoken former Christian Democrat President Francesco Cossiga. However, the moderate communists indicated they would expect Cabinet posts in return.

With the support of Cossutta and UDR, D'Alema would have enough votes to form a government. But a sticking point could be UDR's insistence that the government drop its commitment to introducing a 35-hour work week, which has been a key communist demand.

Rome Bureau Chief Gayle Young and Reuters contributed to this report.