JERUSALEM - Israeli premier Benjamin Netanyahu stumbled out of a bruising election Wednesday with a reduced majority, faced with having to curb his hawkish Palestinian policy to woo emergent centrist kingmaker Yair Lapid.
In results that defied expectations, the centrist Yesh Atid became Israel's second strongest party, just nine months after it was created by Lapid, a former journalist, who has overnight become the country's newest political star.
The results are a blow for Netanyahu, who had sought a bulletproof rightwing majority that would give him freedom to manoeuvre on key foreign policy issues including Iran's nuclear programme and peace with the Palestinians.
Lapid's faction ran on a secular socio-economic platform that called for universal military service, but also favours negotiations with the Palestinians, and could force Netanyahu to moderate his economic policy and take a new line on peace talks.
Coalition negotiations are expected to be delicate, particularly as with the Knesset's 120 seats evenly split between the rightwing and centre-left blocs.
The split means the centre-left could seek to prevent Netanyahu from forming a government, but analysts said it was more likely he would stay on as prime minister at the head of a broad-based coalition.
"There is no reasonable government - meaning none that Netanyahu could head without becoming an international pariah - without Lapid," analyst Yossi Vertner wrote in the Haaretz daily.
"Thus Lapid has become the most important player in the political system," he said.
"He has two choices: become head of the opposition, or the most senior and influential minister in the third Netanyahu government."
Lapid has said little on the issue of Iran, but insisted his party would not join a government that refused to talk to the Palestinians.
With 99.5 per cent of the votes counted, Israel's electoral committee said the list grouping Netanyahu's rightwing Likud and the hardline nationalist Yisrael Beitenu faction had won 31 seats.
The far-right national religious Jewish Home won 11 seats, as did the Sephardic ultra-Orthodox Shas. The Ashkenazi ultra-Orthodox United Torah Judaism faction won seven seats, bringing the bloc's total to 60.
On the centre-left side, Yesh Atid came away with 19 seats, ahead of the centre-left Labour party, which won 15.
The HaTnuah faction of former foreign minister Tzipi Livni carried six seats, as did the leftwing Meretz, while Livni's onetime party Kadima won just two.
Combined, the three Arab-Israeli parties that crossed the electoral threshold to make a showing in the parliament, won 12 seats, giving the centre-left 60 seats as well.
The results mirrored exit polls released on Tuesday night that prompted Netanyahu to offer a victory speech in which he pledged to form the "broadest possible coalition."
He addressed Lapid, telling him: "We have an opportunity to do great things for Israel. The election campaign is behind us, and we can now focus on action for the benefit of all of Israel."
Lapid also called for a broad government, which he said would "include moderate elements from the left and the right to bring about real change."
Speaking to Israeli public radio on Wednesday morning, Likud member and vice prime minister Silvan Shalom said he hoped to see an expansive coalition.
"I've pushed for the Labour party to return to the Knesset," he said, adding that a broad-based government would be best for dealing with the challenges of "the Iranian issue, the Arab spring and the Islamist winter."
Netanyahu has said his new government's top priority will be preventing Iran from obtaining nuclear weapons, but domestic challenges will be no less pressing.
Taming a larger-than-expected deficit will also be a priority for the next government, but it may be hard for parties like Yesh Atid, which campaigned on the plight of the middle class, to stomach tough austerity measures.
Final figures put turnout in the Tuesday vote at 66.6 per cent, up slightly from 65.2 per cent in the 2009 elections. Final election results are not expected until later in the week, after overseas and military votes have been counted.
And the process of forming a coalition of at least 61 members of parliament is expected to take at least two weeks, though the rare split in the Knesset could extend the negotiations further.