"Today Israeli democracy has spoken clearly. Israel wants Kadima," Olmert, the interim prime minister, said in a speech at the centrist party's election headquarters after exit polls in Tuesday's vote forecast a first-place finish.
With all polling stations accounted for, official results show Kadima with 28 seats in the 120-member Knesset or parliament, centre-left Labour with 20, the ultra-Orthodox Shas with 13, ultra-nationalist Yisrael Beiteinu with 12 and right-wing Likud with 11, Israeli Army Radio said.
Officials said they would still have to count the votes of soldiers and Israelis who voted in locations other than their home stations, such as invalids and election workers - so the total vote count would not be completed until Friday.
In the absence of progress towards peace, Olmert aims to set Israel's final frontier by 2010 by expanding big settlement blocs in the occupied West Bank and removing isolated enclaves there.
Palestinians say such unilateral moves, including tracing a border along a fortified separation barrier Israel is building inside the West Bank, would deny them a viable state.
Olmert, appealing in his speech to Mahmoud Abbas, the Palestinian president, said Jews had aspired for thousands of years to create a homeland throughout the Land of Israel, biblical territory that includes the West Bank.
"We are ready to compromise, to give up parts of the beloved Land of Israel ... and evacuate, with great pain"
interim prime minister
"But acknowledging reality and circumstances, we are ready to compromise, to give up parts of the beloved Land of Israel ... and evacuate, with great pain, Jews living there, to create the conditions that will enable you to fulfil your dream and live alongside us," he said.
If the Palestinians did not move towards peace, he said, "Israel will take its destiny in hand" and set permanent borders after lobbying the United States and others for support.
The results were a sharp setback for Benyamin Netanyahu, Likud's leader and a former prime minister.
Netanyahu pledged to stay on as Likud chief, a post he regained only three months ago after Ariel Sharon, the then prime minister, quit the party amid an internal revolt over Israel's Gaza pullout.
Sharon founded Kadima before suffering a stroke on January 4 that sent him into a coma.
Netanyahu has pledged to stay on
as Likud's leader
Olmert's unilateral approach appeals to many Israelis worn down by a five-year-old Palestinian uprising and concerned by the rise to power of Hamas in the West Bank and the Gaza Strip after the Islamist resistance group won elections in January.
But Kadima's showing, weaker than the 44 seats opinion polls had once predicted it would win, signalled that Olmert could have trouble sustaining support for his dramatic plan.
Kadima is expected to seek a coalition government with a group of small parties ranging from ultra-Orthodox Jewish factions to a pensioners' rights group.