SALEM - Oregon House Speaker Jeff Merkley plans to file notice with the Federal Election Commission by Aug. 1 that he'll be running for the U.S. Senate against incumbent Republican Gordon Smith, two sources close to the campaign told The Associated Press Tuesday.

Merkley is on vacation in Central Oregon with his family this week, and wants to consult with them one last time before making the final, firm decision to challenge Smith, according to a strategist who has been advising Merkley.

Merkley could not be reached for comment.

“He could come back and say, ‘We've decided that we are just not ready for this,'” the strategist said. “I strongly believe that is not going to happen.”

But creating a federal campaign committee, which allows a candidate to begin raising money, is an essential first step in what could be one of the marquee national races of the 2008 election cycle. A formal campaign announcement would follow, probably by early August, according to sources, who requested anonymity because Merkley's decision is still not 100 percent final.

Smith is considered vulnerable, partly because of Oregon's distinctly Democratic leanings. In recent months, he's had high-profile breaks with his party and with the Bush administration, including over the future direction of the Iraq war, and on funding for Medicaid.

Merkley, a Portland Democrat, led the Democratic takeover of the Oregon House in 2006. It was the first time Democrats had controlled the state House of Representatives in a generation, and they passed a slate of bills, on everything from renewable energy incentives to the creation of a state savings account.

National Democrats have been hunting for a high-profile challenger for Smith for months, and unsuccessfully tried to woo U.S. Rep. Peter DeFazio of Springfield to enter the race. Portland lawyer and activist Steve Novick announced plans to run in March and has raised around $200,000 so far, but his campaign has yet to catch on with party heavyweights, who could funnel millions of dollars to the race.

Merkley has met with many of the freshmen Democratic senators elected in 2006, including Claire McCaskill of Missouri, Sheldon Whitehouse of Rhode Island, Sherrod Brown of Ohio and Amy Klobuchar of Minnesota, all of whom encouraged him to run, sources said. He's also been encouraged by recent internal polling, which has shown him within striking distance of the far-better-known Smith, who already has $3.5 million stockpiled for the race.

National Democrats, who say Smith is one of their top three or four targets in 2008, have pledged to Merkley that he'll be “financially competitive,” and will likely pay for television ads to be in heavy rotation.

A spokesman for Smith said their office would have no immediate comment.

Novick, though, said he would “welcome Jeff to the race, and look forward to a series of joint appearances around the state, where each of us will make the case for why Gordon needs to be replaced.”

Shawn Cleave, communications director for the Oregon Republican Party, said: “Jeff Merkley is the last choice for desperate Democrats and the first choice for people who love higher taxes.”