By Joseph Krauss

JERUSALEM, ISRAEL - Israeli Foreign Minister Tzipi Livni and hawkish ex-premier Benjamin Netanyahu both declared victory in a nail-biting election on Wednesday, setting the stage for a protracted power struggle.

Television projections based on 52 percent of votes cast showed Livni's centrist Kadima party with a surprise but narrow lead of just one seat ahead of Netanyahu's right-wing Likud, after a vote that saw a major shift to the right.

'Today the people have chosen Kadima,' Livni told party supporters in Tel Aviv as she vowed to become Israel's second woman prime minister and urged Netanyahu to join a national unity government under her leadership. 'Israel does not belong to the right in the same way that peace does not belong to the left,' said the 50-year-old Livni.

Security was a major theme of the vote in the wake of Israel's war on Gaza and its Hamas rulers and the outcome will be crucial in determining the future of Middle East peacemaking.

Although jubilant Kadima supporters jumped with joy after exit polls showed it ahead, it is not certain Livni will be chosen to form the next government, and the tight race means Israel is facing weeks of political uncertainty.

Netanyahu, 59, also said he was confident he would head the next government after Likud - which suffered a devastating defeat in 2006 - was projected to more than double its representation.

'The national camp led by the Likud has won an unambigious majority,' Netanyahu told supporters at party headquarters in Tel Aviv.

'I am certain that I will be able to form the next government,' he said. 'I can unite all forces of this nation and lead Israel.'

Under Israel's political system, the party with the most seats is not necessarily tasked with forming a government and most analysts said before the vote that Netanyahu was the best placed to corral the required 61 MPs.

The far-right Yisrael Beitenu party of Avigdor Lieberman - set to become kingmaker in coalition negotiations - took third place with 14-15 seats and the Labour party of Defence Minister Ehud Barak came in fourth with 13, according to three exit polls, a historic low for the centre-left party. The ultra-Orthodox Shas party came fifth, with 9-10 seats, according to two exit polls, rounding out overall gains for right-wing parties.

The Palestinian Authority has been careful not to voice publicly a preference for any candidate, but is hoping US President Barack Obama will help ensure that the next prime minister does not bury already stalled peace talks. Senior Palestinian negotiator Saeb Erakat expressed dismay that right-wing parties had performed so well. 'It's obvious the Israelis have voted to paralyse the peace process,' he told AFP.

Hamas - which endured a devastating three-week Israeli offensive in Gaza that killed over 1,300 Palestinians and 13 Israelis - had originally expressed little interest in the vote, saying all Israeli leaders were equally bad. But after the exit polls, Hamas spokesman Fawzi Barhum said Israelis had voted for 'the most bellicose candidates, those who are the most extremist in their rhetoric.'

Despite fears the foul weather would keep voters indoors, 65.2 percent of the almost 5.3 million eligible voters turned out, slightly higher than in the 2006 election.

For weeks, opinion polls have given the lead to the Netanyahu, a smooth-talking tactician who become Israel's youngest prime minister in 1996 and again presented himself as a security hardliner.

But in recent days, Livni had clawed back some of the ground lost by Kadima, which is still reeling from a series of corruption scandals that forced Prime Minister Ehud Olmert to resign last year.

The biggest surpise in the election has been the meteoric rise of Lieberman, a tough-talking Moldovan-born former bouncer who has taken a hard line against Israel's Arab minority and been derided as a racist by his critics.

'I am very glad we hold the key' to the next government, Lieberman told his supporters, adding that he was 'leaning towards a right-wing government' but would not make any immediate decisions.

Netanyahu has vowed to topple Hamas and put a stop to rocket attacks which have continued sporadically since the January 18 end of the Gaza war. He also wants peace talks to focus on improving economic conditions in the West Bank before other issues are discussed.

Opinion polls indicate he will emerge in the strongest position to form a government, and he has said he wants a broad alliance with Kadima and Labour. In her two and a half years as foreign minister, Livni - a former Mossad spy - spearheaded peace talks with the Palestinians which have made little visible progress. -AFP