Both Foreign Minister Tzipi Livni's Kadima party and Binyamin Netanyahu's opposition Likud styled themselves the winners of Tuesday's elections, after it became apparent that Kadima had won the most seats in the new Knesset, but the Likud-led right-wing would constitute the larger bloc.
With 99.7 percent of the votes counted, Kadima was narrowly leading Likud with a predicted 28 mandates, while the latter had garnered a predicted 27 seats. Israel Beiteinu was expected to earn 15 mandates, Labor 13, Shas 11, United Arab List four, United Torah Judaism five, National Union four, Hadash four, Meretz three, Bayit Hayehudi three, and Balad three.
The final results, including votes from soldiers and emissaries abroad, will only be published on February 18.
Overall voter turnout, which observers had feared would be low, was 65.2%, over two percentage points higher than in the 2006 national elections.
Livni had argued earlier in the day that whoever headed the biggest party should be deemed to have "won the public's trust" and should thus be charged with forming the next coalition.
But Likud leaders were already working on Tuesday to construct a "blocking" majority that would deny her any such prospect.
Israel Beiteinu, whose support could be critical to the nature of the next coalition, was to meet on Wednesday to discuss the options produced by the election outcome. But party leader Avigdor Lieberman, in a victory speech after midnight, indicated it was his intention to go with the Likud.
"We've turned into a significant party, the third largest in Israel," Lieberman told cheering supporters. "It's true that Tzipi Livni won a surprise victory. But what is more important is that the right-wing camp won a clear majority... We want a right-wing government. That's our wish and we don't hide it."
Both Netanyahu and Livni had called Lieberman on Tuesday night and asked for his support.
Kadima leaders expressed confidence that Livni would be able to form a government together with at least Labor, Meretz and Israel Beiteinu.
In an effort to reach out to Lieberman, Livni's associates said her first step as prime minister would be to change the political system, an issue at the top of his platform.
Livni challenged Netanyahu in statements throughout the day Tuesday to fulfill the public's desire for a national-unity government by joining a coalition led by her.
"As soon as Kadima gets more mandates, Bibi will have to stop with his manipulations and join a national-unity government," Livni said.
"Whoever gets more mandates won the public's trust and no one can argue with that. We are the only party that can form a national-unity government."
Lior Chorev, another top Kadima strategist, said, "The president has to allow Livni the chance to form a coalition. It's going to be difficult, but if she gets a chance she will succeed. The last time she had the opportunity to do it she decided not to burden the Israeli taxpayer with billions of shekels paid to the ultra-Orthodox. Livni has a backbone that Netanyahu never had. This time she can get the moderate left and the moderate right. We will ask Netanyahu to join us. We know he is hurting now, but he'll take the next 48 hours to recover and then we'll talk to him. Lieberman can also join without too many problems. Lieberman's campaign is far from what he is when he's in the government, he's much more practical."
Likud MKs said that due to the six- to eight-seat victory of the Right bloc over the Left bloc, they expected President Shimon Peres to entrust Netanyahu with forming the government, even if Kadima ended up with more seats than the Likud.
They said they had no doubt that Livni would fail to form a government, because she was not able to build a coalition in October when the Left bloc had more seats.
"Netanyahu will be Israel's next prime minister," the Likud said in a statement after the exit polls were released. "The election proved that the path of the Likud and the national camp won. A clear majority of the nation rejected the path of Kadima and its partners and accepted the path of Likud and the nationalist camp."
The Likud leader called for the entire nationalist camp to unite under his leadership and said he would immediately begin efforts to form as wide a government as possible.
Peres intends to meet with the factions quickly to expedite the process of appointing a candidate to form a coalition.
In his concession speech, Labor chairman Ehud Barak said he would not join a government that "does not fit with what we believe" and that he was not afraid to join the opposition.
He cautioned against eulogizing Labor and vowed to rehabilitate the party and return it to power.
If the results predicted by the exit polls turn out to be accurate, the Likud would have fallen massively from as many as 36 seats predicted by polls taken in December to as few as 27.
But Likud MKs put a positive spin on the results by saying that the party had more than doubled its mandates since the 2006 election while Kadima had remained with around the same number of seats.
In Likud and Labor, opponents of the party chairmen already began talking after the exit polls about their leaders' failure. Both Netanyahu and Barak could face challenges to their leadership from inside their parties.
Netanyahu's nemesis in the Likud, Moshe Feiglin, released a statement saying that Netanyahu's battle against him took right-wing votes away from Likud and gave them to Israel Beiteinu.
A number of Likud politicians privately admitted that the party had assumed that the victory was theirs and had not campaigned hard enough in the last weeks before the election, a move that made them vulnerable to rival parties.
Tovah Lazaroff, Amir Mizroch, and Rebecca Anna Stoil contributed to this report.