Netanyahu Seeks New Term in Israel Election as Settlers Gain

Israelis vote today with Prime Minister Benjamin Netanyahu probably headed for a third term and a dilemma whether to expand West Bank settlements or choose allies backing new peace efforts with the Palestinians.

Netanyahu’s Likud-Beitenu ticket has been the clear favorite in all pre-election polls, forecast to win between 32 and 37 seats in the 120-member Knesset. In any scenario, he will have to patch together a group of smaller parties to gain a parliamentary majority.

The coalition’s makeup may determine outcomes ranging from managing inflation to whether Israel bombs Iran. Parties in the current coalition, including the ascendant Jewish Home, are gaining support by opposing talks aimed at agreement on a Palestinian state. That’s Netanyahu’s stated policy and reviving the process is a U.S. priority. Alternative partners on the center-left have objected to parts of the premier’s economic plan, including spending cuts to slash the budget deficit.

“This election will show how strong Netanyahu’s own base is, and what price he needs to pay for a coalition that gives him political flexibility.” said Peter Medding, a Hebrew University political scientist.

“Likud-Beitenu is the party of the people, and the bigger it is, the easier it will be to lead,” Netanyahu, 63, said after voting early today at a Jerusalem polling station with his wife and two sons.

Bombing Iran

The premier would also need support from his Cabinet for any decision on bombing Iran’s nuclear facilities, an Israeli threat that has led to tensions with President Barack Obama. Netanyahu says it may be necessary to stop Iran gaining atomic weapons that would endanger Israel. He regularly says the world should be more worried about an Iranian bomb than Israeli settlements.

Investors have shown their approval for Netanyahu’s handling of the economy. Since his second term began in March 2009, Israel’s benchmark stock index has climbed 64 percent and the shekel has surged 13 percent versus the dollar.

Voting stations, where Israelis will cast paper ballots at 10,133 sites around the country, opened at 7 a.m. and close at 10 p.m., when all three television stations will announce exit polling results. Some 5.7 million Israelis, about 20 percent of them Arab citizens, are eligible to vote. By 2 p.m., 38.3 percent of eligible voters had cast ballots, the highest rate since 1999 and up from 34 percent in the 2009 vote, the election committee said.

Coalition Bargaining

“Higher voter participation is likely to work in favor of center and left parties,” said Israeli pollster Rafi Smith. Smaller parties such as Kadima, headed by former Defense Minister Shaul Mofaz, may find it harder to pass the minimum vote threshold.

No matter which party gets the most votes, forming a government with a majority in the Knesset, Israel’s 120-seat parliament, may take two months or longer. No party has ever done it alone. The process starts with President Shimon Peres formally asking the head of the winning party to open negotiations with smaller parties to create a ruling coalition. If he or she can’t do that in six weeks, the second-place party gets a chance.

Polls show the Labor Party led by Shelly Yachimovich coming second with as many as 18 seats. Netanyahu may avoid inviting her into a coalition because of the party’s emphasis during the campaign on increased social spending.

“Labor is not supportive of fiscal restraint,” said Jonathan Katz, a Jerusalem-based economist for HSBC Holdings Plc.

Building Settlements

Netanyahu says the deficit needs to be narrowed to 3 percent of economic output this year from 4.2 percent in 2012, requiring 14 billion shekels ($3.7 billion) in spending cuts. He called the election a year ahead of schedule after failing to get coalition partners to agree on the measures.

Another possibility to anchor the coalition is the Jewish Home party, led by Naftali Bennett, which wants to expand settlement construction. It’s set to be the campaign’s biggest winner, with polls projecting as many as 16 seats. The ultra-Orthodox Shas party, which also wants to increase social spending, may get as many as 11 seats and try to retain its place in the coalition.

The most vocal advocate for renewed peace talks with the Palestinians that could join the Cabinet is the Hatenuah party led by former Foreign Minister Tzipi Livni, who is likely to win only six to eight seats, according to polls.

The absence of the peace process from much of the campaign debate has left Palestinians sour about the prospects for a two-state solution.

‘Deliberate Omission’

“Most Israeli political parties are guilty of the deliberate omission of peace from their agenda,” Hanan Ashrawi, a member of the Palestinian negotiating team since 1992, wrote yesterday in a column for Haaretz. “They talk about negotiations when they mean dictation. They talk about ‘managing’ the occupation rather than putting an end to it.”

Netanyahu had aimed to strengthen his hand on the Palestinian and budget issues by running on a combined ticket with Yisrael Beitenu, a party founded by immigrants from the former Soviet Union.

The move backfired when party chairman Avigdor Liberman was indicted on a fraud charge and quit as foreign minister. All polls have shown Likud-Beitenu retreating from its current 42 Knesset seats, with some forecasts as low as 32.

Before it's here, it's on the Bloomberg Terminal.