Earlier in the day Ehud Barak, the Labor leader, had made a deal with Netanyahu to join the coalition - an unprecedented move to unilaterally act before gaining his party's support.
"It has been a scene of mixed emotions here for many of the members of the Labor party - some are speculating that it will be then end, others that it will revive the party," Ayman Mohyeldin, Al Jazeera's correspondent at the conference, said.
"The centre of this coalition is to the extreme right: Likud, Shas, Yisrael Beitenu ... What many people here are now saying is that Labor party has now shifted to the right," Mohyeldin said.
Yuli Tamir, a Labor party member voiced concern that the party would be joining a coalition with Avigdor Lieberman, the hawkish and nationalist Yisrael Beitenu leader and foreign minister-designate.
"We have been very clear about our resignation of what Lieberman says and here we are finding ourselves in a situation that we will be the party that will be supporting Lieberman and Netanyahu in their fight to create a right wing government - this is unbearable," Tamir said.
The vote win came after frenetic speeches at the Labor conference in front of a fractured audience.
Barak argued for backing to join the coalition, saying: "We are responsible for the state of Israel ... Unity is what this country needs.
"The majority of the citizens of this country want to see us together with the right in the government. And the majority of Labor voters want to see us in government.
"I am not right-wing ... We will be a counterweight to guarantee that we do not have narrow right-wing government, but real government that takes care of the country."
Barak also refuted accusations levelled at him that he only wanted to join the coalition to continue his personal career in government.
Mohyeldin said Barak proposed that it was Labor's role and responsibility to go into balance out "what is seen as an extremely right-wing led government".
"He also made the case that he is the right man to continue on as the defence minister. That is one of the positions believed to stay with Labor" in a new government, Mohyeldin said.
Many members of the Labor party had opposed joining a cabinet led by the right-wing Netanyahu because of his limited interest in peace negotiations with the Palestinians.
Seven of Labor's 13 members of parliament had earlier sent a letter to Netanyahu saying: "We must inform you that you cannot count on our support regarding any agreement that you may reach with Ehud Barak."
Additionally, Barak had pledged to stay in opposition if Labor won less than 20 seats in the Knesset, the Israeli parliament.
Labor, once the dominant force in Israeli politics, won only 13 seats in elections held on February 10.
The agreement with Labor might also put Netanyahu's previous deals with the two right-wing parties at risk, endangering the majority in the Knesset he needs to secure before the April 3 deadline he has to form a coalition.
As part of a deal between Labor and Likud, Netanyahu will reportedly commit to continuing negotiations with the Palestinians and to respect deals signed with them in the past.
Labor will get five ministries in the new government, including industry, trade, agriculture and welfare. Barak will keep his post as defence minister.