Despite the loss of Kadima, the prime minister’s Likud party will still hold an overall majority of 12 in the Knesset thanks to its alliance with smaller right-wing and religious parties.
But Mr Netanyahu had appeared poised to call an early election in May shortly before he confounded observers by drawing Kadima into government.
Unwilling to yield to vote-winning concessions that smaller coalition partners are likely to demand when the next budget is drawn up in December, Mr Netanyahu is likely to go to the polls early next year.
A general election is not due until October, 2013 but Mr Netanyahu is highly popular in Israel and opinion polls suggest that Likud would again form the next government.
Despite his strong position, Mr Netanyahu will regard the loss of Kadima as a blow. Its support would have been useful domestically if he decided to launch unilateral military action against Iran’s nuclear facilities.
Sinking fast in the opinion polls, Kadima had pinned its hopes of a recovery on securing reforms to the conscription law, which is viewed as highly unfair by secular Israeli Jews who make up the majority of the country’s population.
Until now, most ultra-Orthodox Jews have been exempt from army service on the grounds that many do not complete their religious education until they are in their forties.
With religious parties disproportionately powerful in the Knesset as they can make of break coalition governments, Mr Netanyahu proved unwilling to alienate them by taking a strong stance on the issue.
Instead, he proposed compromises that would have allowed far more Ultra-orthodox Jews to escape the draft than Kadima was willing to countenance. Some observers say Mr Netanyahu’s position could cost him votes from some traditional Likud voters.
Kadima, which takes a less combative line on negotiations with the Palestinians, is pinning its hopes of electoral survival on being able to woo those angry over Mr Netanyahu’s reluctance to confront ultra-Orthodox leaders.
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