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Now weakened by the verdict of voters, he is almost certain to need centrist partners for a stable coalition and may perhaps offer more flexibility toward the Palestinians, although few expect any breakthrough in the coming months.
Israeli shares traded higher after the election, with the blue-chip Tel Aviv index up 1.5 percent at 1030 GMT, while the shekel held steady against the dollar, showing markets were unfazed by fears of prolonged coalition talks.
Amram Mitzna, a senior member of former Prime Minister Tzipi Livni’s centrist Hatnua party, told Army Radio the election had “arrested the rightward drift of Israeli society” and urged Netanyahu to heed to message delivered by voters.
He even mooted an unlikely “dream government” in which Likud would forge a strong coalition with leftist and centrist parties, excluding far-right and religious factions.
Lapid won support amongst middle-class, secular voters by promising to resolve a growing housing shortage, abolish military draft exemptions for Jewish seminary students and seek an overhaul of the much-criticised education system.
He urged Netanyahu “to build as broad a government as possible so that we can bring about real change in Israel”.
Naftali Bennett, high-tech millionaire son of American immigrants who leads the hard-right, pro-settler Jewish Home party, remained a likely coalition partner despite making a poorer election showing than opinion polls had predicted.
Bennett, who advocates annexing West Bank land to Israel, told cheering supporters: “There is only one truth and it is simple. The land of Israel belongs to the people of Israel.”
U.S.-brokered peace talks broke down in 2010 amid mutual acrimony. Since then Israel has accelerated construction in the West Bank and east Jerusalem - land the Palestinians want for their future state - much to the anger of Western partners.
Aaron David Miller, once a senior U.S. adviser on Israeli-Palestinian peacemaking, said a weakening of the right might improve Netanyahu’s relations with Obama.
“The fact is, if (Netanyahu) goes with Lapid and he reaches out to the centre, you’re going to end up with an American-Israeli rapprochement to a certain degree,” Miller told CNN.
Tuesday’s vote was the first in Israel since Arab uprisings swept the region two years ago, reshaping the Middle East.
Netanyahu has said the turbulence, which has brought Islamists to power in neighbouring Egypt and elsewhere, shows the importance of strengthening national security.
Foreign policy issues barely registered during the election campaign. The next government, which is unlikely to take power for weeks, will have to tackle the stuttering economy and a budget deficit that presages spending cuts and tax hikes.