Israeli Prime Minister Benjamin Netanyahu. File photo: Reuters

Jerusalem - Benjamin Netanyahu set about forging a new ruling coalition on Wednesday after Israeli voters fed up with state coddling of ultra-Orthodox Jews chastised him by propelling an upstart centrist party to prominence.

Tuesday's vote crystallised demands for attention to bread-and-butter issues over the ambitions of religiously fired hardliners, and largely sidelined foreign policy issues such as Iran's nuclear plans and Palestinian aspirations.

The right-wing prime minister claimed victory after his Likud party and its ultranationalist Yisrael Beitenu ally took 31 of parliament's 120 seats, according to a near-final tally.

That made it the biggest single bloc, despite losing 11 seats, including to a far-right religious party whose expansive land claims proved popular. Overall, the right emerged with roughly half the total. Final results are expected on Thursday.

Making a virtue of necessity, a weakened Netanyahu has signalled a desire to broaden his coalition with centre-left parties, notably a new group led by a former TV anchorman.

Such a shift could ease friction between him and US President Barack Obama, himself embarking this week on a new term in office and who wants to avert an Israeli attack on Iran and restart stalled peace talks with the Palestinians.

“The likelihood of a purely right-wing government has receded, along with the headaches that would cause for Obama,” said David Makovsky, an expert at the Washington Institute for Near East Policy. “So there's a better chance for Netanyahu to find a 'modus vivendi' with the United States.”

In the first US reaction, Obama's spokesperson renewed a call for resuming stalled peace talks with the Palestinians: “We believe that what needs to take place is direct negotiations between the two parties that addresses the final-status issues and results in a two-state solution,” Jay Carney said.

Israeli media highlighted the electoral setback for Netanyahu and the surprise surge of the centrist Yesh Atid (There is a Future) party, runner-up with 19 projected seats in a parliament likely to include about a dozen parties in all.

Yesh Atid and the centre-left Labour party, which came third with 15 seats, tapped into secular middle-class resentment that taxpayers must shoulder what they see as the burden of welfare-dependent ultra-Orthodox Jews exempt from military conscription.

Netanyahu, who in two terms as premier has enjoyed backing from the growing religious minority, quickly made overtures to his opponents by saying he wanted to form as wide a coalition as possible, a process that is likely to take several weeks.

In an apparent bid to persuade Yesh Atid leader Yair Lapid to join his cabinet, Netanyahu pledged his administration would ensure “a more equal sharing of the burden” - a reference to generous privileges granted to the ultra-Orthodox 10 percent.

He also promised affordable housing and changes in the electoral system: “We awaken to a morning after the elections with a clear message from the public, which wants me to continue to lead the country,” Netanyahu told reporters.

Praising the premier's reaction to the vote, Lapid signalled he would negotiate with Netanyahu, by rejecting overtures from the left to try and form a bloc to deny him the premiership: “I want to take this off the table. We won't create a blocking majority,” Lapid said, adding the “election results are clear”.

Former broadcaster Lapid focused his campaign on ending draft exemptions for Jewish seminary students and drawing more of the ultra-Orthodox, many of whom receive state stipends, into the workforce - steps supported by many secular Israelis.

A senior member of Yesh Atid said that ending exemption from military service was central to the party's platform, as was reviving the US-backed peace talks with the Palestinians.

“Whoever wants Yesh Atid in the coalition will need to bring these things,” Ofer Shelah told Army Radio.

Nonetheless, Netanyahu, whose support for expanding Jewish settlement in the West Bank has been blamed by Western leaders for undermining peace plans, is also likely to try to draw in parties who will not countenance giving up occupied land.

Palestinians reacted warily to the outcome of the poll, voicing doubts it would produce a government more willing to compromise for peace, even if it included centrist parties.

An editorial in the Palestinian daily Al-Quds said such parties would provide a “cosmetic decoration” for a Netanyahu-led government that would mislead world public opinion without halting a drive to expand Jewish settlement on occupied land. - Reuters