(Bloomberg) — Israelis began voting in general election
with polls signaling they’re weary of Prime Minister Benjamin
Netanyahu, yet wary of choosing a new leader amid mounting
security threats and deadlocked talks with the Palestinians.

Balloting stations opened at 7 a.m. local time. Surveys
indicate the election is too close to call. Most show
Netanyahu’s Likud party trailing opposition leader Isaac
Herzog’s Zionist Union by three or four of parliament’s 120
seats, with both falling far short of a majority.

Polls show Netanyahu, who said yesterday he won’t allow the
establishment of a Palestinian state if he’s re-elected, is
better able to build a coalition with like-minded smaller
factions. A shift of a few seats could turn the tide in Herzog’s
favor, or compel the two to form a unity government.

The election comes as Israel is grappling with stalled
negotiations with the Palestinians, rising Islamist militancy on
its borders, Iran’s nuclear program and growing friction with
the U.S. Netanyahu contends only he has the experience and
toughness to confront these challenges. Herzog says the prime
minister’s approach has only made these problems worse, and he’s
also criticized Netanyahu’s economic record.

“There is a sense of public fatigue with Netanyahu,” said
Abraham Diskin, professor emeritus of political science at the
Hebrew University of Jerusalem. “However, he still benefits
from the ideological loyalty of his nationalist camp and the
public uncertainty over Herzog’s capabilities.”

Weeks of Uncertainty?

It may take weeks before the real winner of the election
emerges, as party leaders maneuver to forge alliances. Final
results are to be announced late Thursday, and only a week later
at the earliest will President Reuven Rivlin assign someone to
build the next coalition. Under Israel’s electoral system, the
task goes to the party deemed best able to form a government and
doesn’t automatically go to the faction with the largest number
of parliamentary seats.

Netanyahu, 65, said on Tuesday that he would form a
government with Economy Minister Naftali Bennett’s Jewish Home,
which opposes a Palestinian state, ruling out a unity government
with Herzog.

The 54-year-old Herzog, a Tel Aviv lawyer and son of
Israel’s sixth president, has held several cabinet posts,
including the housing and social affairs ministries. Netanyahu
has served six consecutive years as prime minister by winning
two elections, and spent three years as premier from 1996-1999.

Likud Slipping

The vote, more than two years ahead of schedule, was
precipitated by Netanyahu’s firing in December of Finance
Minister Yair Lapid and Justice Minister Tzipi Livni over policy
disputes. Likud’s early lead in the polls narrowed as the
campaign progressed, especially after Herzog allied his Labor
party with Livni’s Hatenuah faction to create Zionist Union.

An Israel Radio poll published March 13 showed Zionist
Union winning 25 seats, Likud 21, and a united ticket of Arab
parties in third place with 13. Tied at 11 seats were Jewish
Home and Lapid’s Yesh Atid, which bills itself as the champion
of the middle class.

Netanyahu has been hurt in this election by a focus on
economic issues, especially the rising costs of housing. This
vulnerability was aggravated by a government watchdog report
last month that criticized spending in the prime minister’s
households.

Kahlon Benefits

Several institutional investors say the vote’s outcome is
irrelevant to their strategies because they expect no major
economic upheavals or policy shifts.

The benchmark stock index rose to an all-time high this
month as investors focus on developments in global markets and
central bank efforts to boost demand after consumer prices fell
six months in a row.

The Bank of Israel last month cut its base rate to a record
0.1 percent. The economy is forecast to expand 3.1 percent in
2015, in line with the U.S. and above the 1.2 percent growth
expected for the Euro area, according to data compiled by
Bloomberg.

One beneficiary of public dissatisfaction with house prices
has been Moshe Kahlon, who as communications minister under
Netanyahu brought down the price of mobile-phone services by 90
percent. Riding on that success, his new Kulanu party is
expected to win about eight seats, polls project. Netanyahu has
said he can’t form a government without Kahlon, and offered to
appoint him finance minister. Kahlon, who quit Netanyahu’s
previous government, dismissed the offer and has said he could
serve under either Herzog or his former boss.

Veteran Factions

Two veteran factions may find themselves out of Knesset,
and that could affect the balance of support for the camps. Some
polls have shown Foreign Minister Avigdor Liberman’s Yisrael
Beytenu, which distrusts concessions to the Palestinians, and
Meretz, a leftist party that advocates Palestinian statehood,
grazing the newly raised threshold of votes for entering
parliament.

If backed by Kulanu and past allies — Jewish Home, Yisrael
Beytenu, and ultra-Orthodox Jewish lawmakers — Netanyahu would
have enough support to form a narrow, right-wing government,
even if Zionist Union emerges as the biggest party, polls
suggest. Herzog faces a tougher road in forming a coalition, and
would probably need support from Arab parties that have never
been a part of any Israeli government.

If the results mirror the latest polls, Rivlin will
recommend to Netanyahu and Herzog they form a unity government,
Channel 2 television reported last week. Analysts say Herzog is
unlikely to join with Netanyahu unless they take turns rotating
in the prime minister’s seat, an arrangement that has occurred
only once in Israel’s history, in 1984.

To contact the reporter on this story:
Calev Ben-David in Jerusalem at
cbendavid@bloomberg.net

To contact the editors responsible for this story:
Alaa Shahine at
asalha@bloomberg.net
Karl Maier