Final count leaves Israel with election headache

BREAK WITH TRADITION

Lieberman surged to third place in the ballot, past the once dominant Labour party, with a call for Israeli Arabs to undergo loyalty tests. He has emerged as potential kingmaker.

"I know exactly what I am going to tell the president," he said on Israel Radio, without elaborating. He held talks with both Netanyahu and Livni on Wednesday.

Netanyahu held coalition talks on Thursday with the right-wing National Union, which won four seats, and Israeli media said it seemed Peres would have no choice but to pick the Likud leader if the various rightists all backed him.

But it would be the first time in Israel's 60-year history that the winner of an election had been passed over.

The election results become fully official on February 18, when they are published in the government gazette. Peres would then have a week to make his nomination, and the candidate he chooses, 42 days to attempt to form a government.

Netanyahu had been cruising ahead in opinion polls until Prime Minister Ehud Olmert's government launched a military offensive against Hamas Islamists in the Gaza Strip to stop them firing rockets at towns in southern Israel.

The 22-day January war, which cost 1,300 Palestinian lives versus 13 Israelis killed, had massive Israeli public support. After a January 18 ceasefire, the election campaign resumed as Israel pursued Egyptian-brokered talks with Hamas on a durable Gaza truce.

Livni led the main peace talks last year with the Palestinian Authority of President Mahmoud Abbas, and would try to revive them. Netanyahu is cooler on the key trade-offs for an accord -- ceding occupied land and curbing Jewish settlement.