Israeli politicians have started negotiating over the shape of their next government after prime minister Binyamin Netanyahu's Likud party won a narrower-than-expected victory in parliamentary elections on Tuesday.
His party, along with its allies in the ultra-nationalist Yisrael Beiteinu party, took 31 of 120 seats, according to a near-final tally of votes. That makes it the single-biggest bloc, despite losing 11 of its previous seats.
In a brief statement on Wednesday, Netanyahu promised that the next government will focus chiefly on socioeconomic issues.
"The Israeli public wants me... to put together a government which will include three big changes internally: a greater sharing of the burden [of military service], affordable housing, and changes in the system of government," Netanyahu said.
"We will focus... on putting together a government along these three principles."
His coalition will almost certainly include the surprise second-place finisher, Yesh Atid, a new centrist party founded by former television journalist Yair Lapid which is projected to win 19 seats.
Lapid ran largely on an economic platform, promising to lower the cost of living and redistribute the welfare benefits given to ultra-Orthodox Jews.
He also pledged not to join the government unless it takes action to draft the ultra-Orthodox into the army; most are currently exempt from mandatory service. His platform won him wide support among middle-class, secular voters.
Palestinians as 'main losers'
Netanyahu will also likely negotiate with the right-wing Jewish Home party, headed by software mogul Naftali Bennett, which is projected to win 11 seats; and Shas, an ultra-Orthodox party which represents mostly Sephardic Jews and also picked up 11 mandates.
The Labour party, the oldest of Israel's centre-left parties, won 15 seats, fewer than party chief Shelly Yachimovich had hoped.
Palestinians reacted to the results with little enthusiasm.
"If he brings Lapid into his government, this would improve the image of the Netanyahu government in the eyes of the world. But it won't make him stop building settlements, particularly in east Jerusalem,'' said Mohammed Shtayyeh, a senior adviser to President Abbas.
Palestinian officials closely followed the Israeli election campaign, fearing Netanyahu's ambitious plans for settlement construction over the next four years could prove lethal to their dreams of a state.
Ahmed Assaf, a spokesman for the Fatah movement, described the Palestinians as "the main losers from this duel between the racist right-wing parties."