Politics can move fast in Ottawa, and today's announcement by Bob Rae that he is exiting the race to replace embattled Liberal Leader Stephane Dion caught Yukon MP Larry Bagnell by surprise.

"You probably know as much as I do," Bagnell told the Star this morning.

"Both (Dominic) LeBlanc and Rae had press conferences ... there's been no copy of any media releases from any of them. I've not heard anything, but apparently LeBlanc dropped out a short time ago."

Rae's move leaves Etobicoke-Lakeshore (Ont.) MP Michael Ignatieff the last man standing in what was a three-way race for the federal Liberal helm.

Yesterday, Dion backpedalled on plans to stick it out as Liberal leader until the party's May 2009 leadership convention and announced he would step aside as soon as a successor was chosen.

This prompted LeBlanc, a New Brunswick MP, to end his leadership bid, throwing his support behind Ignatieff and turning the contest into a two-way race with Rae.

Early this afternoon in Ottawa, Rae formally announced that he too is bowing out and backing his former college roommate.

"I accept (my decision) without any rancour or undue disappointment," Rae told media assembled at a televised press conference. "I offer (Ignatieff) my full and unqualified support ... for the greater interest of the party and the greater interest of the country."

While Rae attempted to put a brave face on his capitulation, referring to his leadership rival Ignatieff as, "a great guy and very, very fine person," what led to this juncture, was, as Rae put it, "an extraordinary confluence of events."

After the Conservatives presented their economic update to Parliament Nov. 27, proposals to cut public political financing and end federal servants right to strike sent opposition parties into a frenzy.

In fewer than 24 hours, Dion announced a Liberal-NDP coalition alternative, backed by the separatist Bloc Quebecois. Still smarting from the Oct. 14 federal election - the worst Liberal defeat since 1867 - Dion vowed the coalition would topple Prime Minister Stephen Harper's minority government and ask Gov. Gen. Michaelle Jean to allow it to lead the country with Dion as leader.

Fearing his government would fall in the non-confidence vote, Harper asked her to suspend Parliament, which she did.

Her decision bought time for Harper to craft a budget while the Liberal sharks began to circle Dion to hasten a leadership change before Jan. 26, when Parliament is scheduled to resume.

In a scathing op-ed piece published last Saturday in The Globe and Mail, former Liberal deputy prime minister John Manley demanded Dion step aside.

Adding to the drama were divisions over how to select an interim leader in the looming vacuum.

While the Ignatieff camp suggested the decision be made by elected Liberal MPs (77) and senators (58), Rae lobbied for a more grassroots approach.

Now, in the wake of Rae's announcement, it's all but certain Ignatieff will be confirmed interim Liberal leader, with his likely coronation expected at the party's leadership convention next year.

Rae, the former Ontario provincial NDP leader and one-time premier, said he would not challenge Ignatieff at the convention.

Rae also sidestepped questions on his support for the Dion-crafted coalition but reiterated his desire to oust Harper.

"There is a political and moral obligation to replace this authoritarian government," he said.

However, Ignatieff appears lukewarm to the coalition, telling journalists it would be "the coalition if necessary, but not necessarily the coalition."

This statement and Ignatieff's new leadership position did not go unnoticed by NDP Leader Jack Layton, whose party stood poised to receive six cabinet postings under the coalition deal.

In a prepared statement, Layton said the Liberals "have made a commitment to the coalition" and that every Liberal and NDP member, including Ignatieff, had "signed a letter to Her Excellency the Governor General stating that they collectively and individually lost confidence in the government and were committed to working together."

But for both Ignatieff and Bagnell, working together within the Liberal fold would come before anything else.

"I think it's very good for party unity to have a leader we can stand behind," said Bagnell, who has been a vocal Ignatieff supporter all the way back to the former Harvard professor's failed 2006 bid.

"This announcement is good, so that we're not spending all our efforts on the leadership," Bagnell added.

When asked what would happen to the coalition, like Ignatieff, Bagnell took a similar wait-and-see stance.

"We'll certainly be having discussions about that at caucus tomorrow," he said.