Al Jazeera's Jacky Rowland said Barak would probably replace Amir Peretz, the outgoing Labour leader, as defence minister in the government, and use that position to burnish his credentials to eventually challenge for the prime minister's position once again.
Brought into politics by former premier Yitzhak Rabin in 1995
Served as prime minister from 1999 to 2001, overseeing Israel's withdrawal from southern Lebanon
Offered Palestinian leader Yasser Arafat limited sovereignty in Jerusalem, breaking longstanding taboo in failed Camp David talks
Trounced by Ariel Sharon in polls after Palestinian intifada erupted
Country's most decorated soldier and chief of staff in 35 year-military career
Had successful career after leaving office on lecture circuit and as consultant to US-based Electronic Data Systems
The 65-year-old has a Master's degree in engineering and economic systems from Stanford University
Rowland said Barak – Israel's most decorated soldier - had campaigned on two points: that he was the most suitable person to lead Israel in war and that he was the only one who could beat the right-wing Likud party led by Benyamin Netanyahu, another former prime minister, in an election.
Opinion polls suggest an early general election would favour Netanyahu's Likud.
Barak beat Ami Ayalon, the retired Shin Bet internal security service chief, in the Labour run-off.
"Today starts the long and arduous task ... to unify the state of Israel... It is also the beginning of our mission to repair the people's faith in its leaders," said Barak.
With 75 per cent of the votes counted, Barak emerged as the winner with 51.5 per cent against Ayalon's 47.5 per cent.
The remaining 1 per cent were spoilt votes.
Ayalon, also a former head of the navy, said he would respect the outcome of the vote but did not immediately acknowledge defeat.
Olmert faces a test of his leadership on Wednesday when parliament votes for a new head of state.
He has sponsored senior Kadima colleague Shimon Peres for the largely ceremonial presidency but the elder statesman faces a tough challenge from two other legislators in the secret ballot among parliament's 120 members.
Peres was defeated by Moshe Katsav of Likud in a presidential vote in 2000 and a tight race is widely expected on Wednesday.
Katsav stepped aside in January after being accused of rape and sexual harassment. He has denied the accusations.