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This analyis will be updated as more up to date information comes available.

Last update: 14/3/2013, 12.00 GMT

Key points

• The new government marks a significant change of direction for Israeli politics with the exclusion of the ultra-Orthodox parties and the entry of a range of disparate parties who agree on ending ultra-Orthodox exemption from national service and a better deal for the middle class.
• On the peace process, views in the government could hardly be more diverse. Whether Netanyahu takes a more progressive or more conservative approach to brewing international pressure to rein in settlement construction, either way the unity of the coalition and the priorities of its members will be tested.
• On the Iranian issue, the most consistent advocate of an Israeli unilateral military option, Ehud Barak, has been replaced by Moshe ‘Bogie’ Ya’alon as defence minister, who though no less determined to stop Iran, was recently critical of Barak’s posturing on the issue.

What is the makeup of the new government?

It appears that the new government, when the final agreement is signed, will have a 68 seat majority in the 120 seat Knesset based on a coalition deal between four Knesset factions (for a full list of ministers see below):

• The right-wing Likud Beitenu faction with 31 seats (itself a coalition of Likud led by Benjamin Netanyahu with 20 seats and Yisrael Beitenu led by Avigdor Lieberman with 11);
• Yair Lapid’s centrist, secular Yesh Atid with 19 seats;
• Naftali Bennett’s national religious Habayit Hayehudi (Jewish Home) with 12 seats;
• Tzipi Livni’s peace process focussed Hatnua with six seats;

What does the new government mean for Israel?

The new government marks a significant change of direction. Though Prime Minister Benjamin Netanyahu remains in place, he is now working with a dramatically reshuffled political deck. The big shift is the removal from power of the ultra-Orthodox parties and the entry into government of a range of disparate parties who don’t agree on much except the policy of ending ultra-Orthodox exemption from national service and a better economic deal for the middle class. The roots of this transformation are in the social protest movement in the summer of 2011. This remarkable change in the political agenda has created what is in many ways an unlikely looking coalition. The cabinet is also considerably smaller that before as a result of a demand by Yair Lapid to cut out wasteful and redundant ministries.

The coalition building process has been defined by an alliance between the centrist-secular Yair Lapid and the national-religious Naftali Bennett. Despite having very different world views, these two share positions in the socio-economic sphere. They agree on reducing the growing economic burden created by the ultra-Orthodox by drafting them to national service and more importantly, by bringing them into the workforce. Both constituencies want to see the over-concentration of wealth in the country addressed and a reduction in the cost of living.

Lapid, therefore, wanted Bennett in the government to keep out the ultra-Orthodox. Bennett, for his part, needed the alliance with Lapid to get his party into government. Despite appearing ostensibly to be a natural partner for Netanyahu on peace and security issues, Netanyahu did not seem keen to have him, with a history of personal animosity between the two. Netanyahu unsuccessfully explored the options of including Labour or the ultra-Orthodox, before finally bringing Bennett in.

Completing the picture, and balancing the government out on the left is Tzipi Livni, now at the head of her own hand-picked faction. Leading a small faction and with no appetite for another spell in opposition, she turned out to be the easiest partner for Netanyahu to bring in, and fulfil his desire for a coalition in which he sits at the centre of a range of views on the peace process.

For Israel this government means almost certainly a new law that will end ultra-Orthodox exemptions from national service and other measures aimed at addressing middle class economic and social concerns. It is also reported that the government will raise the threshold for a party entering the Knesset from 2% to 4%. On other key issues, it is much harder to say what it will do.

What about the peace process?

Views on the peace process in the new government could hardly be more diverse. Tzipi Livni, who has been given the job of leading negotiations with the Palestinians, believes it is an imperative for securing Israel’s future as a Jewish and democratic state to seek an accord with Palestinian Authority President Mahmoud Abbas. Whilst Yair Lapid agrees in rhetorical terms, his commitment to the issue is untested. At the other end of the spectrum, Naftali Bennett and his party do not believe in the two-state solution and want to promote continued settlement construction in the West Bank. Those views are shared by a number of the Knesset members in Benjamin Netanyahu’s own Likud party.

Netanyahu himself is somewhere between these positions. He accepts the two-state idea in principle and has called consistently for direct talks with the Palestinians to seek a deal. But he is sceptical about the Palestinians as a partner, and generally seems more concerned about the security implications of leaving the West Bank, than the diplomatic implications of continuing the occupation.

Very considerable diplomatic pressure is now likely to build on Israel to offer gestures to the Palestinians in return for which the Palestinians would re-enter negotiations and hold off further unilateral steps. In the first year of his last term Netanyahu imposed a ten month settlement moratorium, and some measure to rein in settlement construction may come back onto the table.

This will be a key test of Netanyahu’s intentions and those of his coalition partners. Will Naftali Bennett leave the government if Netanyahu makes concessions to the Palestinians? How much pressure will Lapid put on Netanyahu if he does not? Both will know that there are parties in opposition, the ultra-Orthodox parties and Labour, who could potentially replace them. Left leaning opposition parties could also potentially prop up a minority government from outside the coalition, if it is for the sake of maintaining the peace process.

If negotiations are resumed with the Palestinians, it will remain to be seen how Tzipi Livni’s role as the minister responsible for negotiations will translate in practical terms. The key decision maker will remain Netanyahu, who will no doubt continue to rely closely on personal aides in the peace process, foremost among them his long time negotiator and legal advisor Yitzhak Molcho.

Other ministers will play an important role. Incoming Defence Minister Moshe Ya’alon is more hawkish in his approach to the Palestinians that his predecessor Ehud Barak, who enjoyed a productive working relationship with Palestinian Prime Minister Salam Fayyad. Ya’alon holds a key position when it comes to approving decisions over settlement construction and the legal status of settlement outposts, which fall under the scope of the defence ministry.

What about Iran and other regional threats?

Iran tops a list of acute strategic threats to Israel from the region. The popular Israeli political parlour game of guessing how each minister in the security cabinet would vote on a decision to launch a military strike can begin afresh, with a new cast of characters whose views are not well known. Ehud Barak, who was perhaps the loudest advocate for an Israeli unilateral military option and Prime Minister Netanyahu’s closest confidant on this issue, has now left the defence ministry. His replacement Moshe Ya’alon, though no less determined to stop Iran, was recently critical of Barak’s public posturing on the issue, and is believed to see military action as a very last resort.

Any decision regarding Iran in the coming year will be determined primarily by whether Iran crosses Netanyahu’s red line of enriching enough uranium up to 20% for one nuclear weapon, and the position taken by the US.

Provisional list of ministers (according to latest reports)

Likud – Beitenu (12 ministries)

• Prime Minister: Benjamin Netanyahu (Likud)
• Defence Minister: Moshe ‘Bogie’ Yaalon (Likud)
• Foreign Minister: Benjamin Netanyahu (acting, pending trial of Avigdor Lieberman)
• Interior Minister: Gideon Saar or Gilad Erdan (Likud)
• Transport Minister: Yisrael Katz (Likud)
• Communications/Culture and Sport/Homefront Defence: Limor Livnat or Gilad Erdan (Likud)
• Negev and Galil/Energy: Silvan Shalom (Likud)
• Interior Security Minister: Yitzhak Aharonovich (Yisrael Beitenu)
• Agriculture Minister: Yair Shamir (Yisrael Beitenu)
• Immigration and Absorption Minister: Sofa Landver (Yisrael Beitenu)
• Tourism Minister: Uzi Landau (Yisrael Beitenu)

Yesh Atid (5 ministries)

• Finance Minister: Yair Lapid
• Education Minister: Shair Piron
• Welfare Minister: Meir Cohen
• Health Minister: Yael German
• Science Minister: Yaakov Peri
• Deputy Defence Minister: Ofer Shelah

Habayit Hayehudi (3 ministries)

• Economy and Trade: Naftali Bennett
• Housing and Construction Minister: Uri Ariel
• Pensioners Minister: Uri Orbach
• Deputy Religious Affairs Minister: Eli Ben-Dahan

Hatnua (2 ministries)

• Justice Minister and minister responsible for negotiations with the Palestinians: Tzipi Livni
• Environment Minister: Amir Peretz