(CNN) -- One of Israeli Prime Minister Benjamin Netanyahu's many domestic challenges is settling the volatile issue of which Jewish denominations would have the authority to perform religious conversions in Israel.

The Chief Rabbinate on February 9 rejected a proposal that would have permitted Conservative and Reform rabbis to join Orthodox rabbis in running an institute for prospective converts to Judaism.

After the rejection of the compromise agreement, Reform and Conservative Jewish leaders in Israel resumed their court battle to break the Orthodox rabbinate's monopoly in the Jewish state.

In the absence of a compromise, several religious political parties have threatened to quit the Netanyahu government unless a proposed bill in the Knesset is passed that would formalize the Orthodox monopoly.

Although conversions carried out overseas by non-Orthodox rabbis will continue to be recognized in Israel, the legislation has outraged many Jewish Americans who support Israel either financially or politically.

Reform and Conservative denominations represent most of the affiliated Jews in the United States. The Orthodox, who follow a strict interpretation of Judaism, are the major religious movement in Israel.

Netanyahu has expressed a cautious approach to the bill, telling the Jerusalem Post that it may be best to simply withdraw the legislation to "address the issue in a more careful and thought-out way."