Ehud Barak, Labor's leader and Israel's current defence minister, said he told Netanyahu that Labor would serve as a "responsible, serious and constructive opposition".

"Netanyahu doesn't seem to be making much progress in securing the kind of broad-based unity government that he's after," Jacky Rowland, Al Jazeera's Jerusalem correspondent, reported.

"He's been dangling some juicy ministerial portfolios under the nose of Tzipi Livni, but she's saying that she's not really interested in having high profile portfolios, she's more concerned in the policies of the new government."

Fragile coalition

Without Labor or Kadima's support, Netanyahu is more likely to rely on a narrow coalition of nationalist and religious parties.

Such an outcome could stall peace talks with the Palestinians and consequently harm Israel's ties with Washington as the US administration under Barack Obama, the US president, has declared its eagerness to push aggressively for a peace deal.

"If he can't get these two parties on board, then it looks like he'll have a marginal far-right government where he'll be dependent on far-right parties and religious parties," Rowland said.

"That would only give him a slender majority ... which means that it only takes one little party to get disgruntled with a decision or a policy that he's pursuing and to pull out and then the government would collapse. That may well be what Tzipi Livni is banking on."

A coalition that brings together right-wing factions and the ultra-religious parties would also risk breaking apart over conflicting domestic agendas.

Although both Labor and Kadima support the concept of a Palestinian state, Kadima is considered key to any moderate alliance because of its size.

'Deep disagreements'

Kadima won 28 of parliament's 120 seats in Israel's February 10 election, one more than Netanyahu's Likud.

Netanyahu has had little luck wooing
Kadima's Livni [AFP]
After meeting with Netanyahu late on Sunday, Livni said the two remained divided over peacemaking with Palestinians and indicated that she, like Barak, would head into the opposition.

"We didn't reach any agreement. There are deep disagreements on this issue," she said.

"This evening did not move us forward on the core issues in a way that we can talk about a joint path."

Livni might be open to joining a coalition with Netanyahu if he were to let her serve as prime minister for half of his term, a so-called "rotation agreement" that Israel has used in the past.

Netanyahu has already rejected such an arrangement.