By Alistair Lyon
JERUSALEM (Reuters) - 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 crystallized 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 of its previous seats. Overall, right-wing factions emerged with roughly half the total. Final results are expected on Thursday.
Making a virtue of necessity, a weakened Netanyahu has signaled a desire to broaden his coalition with centre-left parties that would lend it a more moderate gloss.
Such a shift could ease friction between him and U.S. 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 U.S."
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.
"SHARING THE BURDEN"
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.
Listing other priorities that he said he had agreed with his hardline ally and former foreign minister Avigdor Lieberman, he promised affordable housing and changes in the electoral system.
Lapid has focused his campaign on ending military 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.
"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 summoned to his office.
A senior member of Yesh Atid said that ending exemption from military service was central to the party's platform, as was reviving U.S.-backed peace talks with the Palestinians.
"Whoever wants Yesh Atid in the coalition will need to bring these things," Ofer Shelah told Army Radio.
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.
IRAN IN HIS SIGHTS
"We're not seeking to make peace with this or that party in Israel," said Palestinian negotiator Saeb Erekat, adding that peace required creation of a Palestinian state to live alongside Israel based on the lines that existed before the 1967 war.
Netanyahu has complained that Palestinians' own divisions and the violence of some groups undermine attempts to talk. Continued...