The leaders of Israel's two largest political parties, Kadima and Likud, are coming under pressure from the European Union and the United States to form a national unity government and abandon attempts to form a coalition on their own, following last week's inconclusive election results.

The fractured nature of Israeli society gave the two largest parties, Kadima, led by Tzipi Livni, and Likud, led by Benyamin Netanyahu, a mere 44 percent of the vote. Irrespective of their labels, all Israel's parties are right wing on both military and economic policies. Even those who proclaim their willingness to reach a settlement with the Palestinians have become hawks: neither Labour nor Meretz used the word "peace" during the election campaign.

Livni, who is ostensibly committed to some sort of agreement with the Palestinians, won the largest number of seats, 28, compared to Netanyahu's 27. But Netanyahu and the right wing command 65 seats of the 120-seat Knesset. 

Both parties are now engaged in negotiations with the smaller parties to secure a working coalition. This is likely to be a protracted process with an uncertain outcome. President Shimon Peres will be responsible for choosing either Netanyahu or Livni to put together a government. His choice will depend upon which of the two is more likely to gather sufficient support, and he or she will then have up to six weeks to form a coalition.

Netanyahu has by far the better chance of forming a coalition, but would need to include the far-right Yisrael Beitenu led by Avigdor Lieberman. This prospect has raised significant concern within ruling circles internationally because of its impact on their relations with the Arab regimes and the stability of the Middle East. 

For this reason, Javier Solana, European Union foreign policy chief, took the unprecedented step of urging Kadima and Likud to form a national unity government. He said a national unity government would benefit Middle East peace talks, but that a government led by Likud leader Benjamin Netanyahu "would be more difficult." 

French President Nicolas Sarkozy, speaking in Kuwait as part of a visit to the Middle East, said he hoped Israel's new leadership would "have an obsession with peace...which is the guarantee of Israel's security."

The United States has taken no public position on the eventual form of an Israeli government. State Department officials, however, fear that the emergence of an ultra-nationalist government in Israel will undercut Obama's efforts to calm tensions in the region, with his appointment of George Mitchell as special envoy to the Middle East, and his overtures to Iran and Syria. 

Netanyahu has stressed that he can work happily with Obama. He told the Jerusalem Post, for example, that he met with Obama in Jerusalem and Washington on the question of Iran, agreeing to negotiations with Tehran but stressing that they should have a time limit followed by harsh sanctions and possibly military action. 

But despite such assurances, it is highly likely that the State Department has privately made clear its desire to see a Likud-Kadima government rather than a rightist bloc. Netanyahu has acknowledged that he was approached by contacts in the American administration, although Livni has denied any such contact. 

Netanyahu is all too aware that the kind of right-wing coalition that he could put together would find little favour in Washington. He has said that if Kadima were to join a Likud-run government, it could hold at least eight ministerial positions, including the foreign and defence posts, and a further six positions within the government, as well as a number of Knesset committee slots. He has, however, ruled out the kind of rotating premiership that was a feature of the Likud-Labour National Unity Government in the 1980s. 

A Likud official declared on Saturday, "Netanyahu will be willing to accommodate Kadima in order to include it in a unity government led by him, but first Livni must set petty politics aside and place the country's interests first." 

Livni has insisted that she will not join a government led by Netanyahu. On Sunday, Kadima's leadership met in closed session. Livni was reported to declare, "I have already been No. 2 and from that position I will not be able to advance procedures. We went to elections and we won."

"I can also put together a coalition that is united around the peace process," she said in a statement clearly meant for an international audience. "Netanyahu doesn't want that, and couldn't do it even if he did, with his right-wing partners." 

The outgoing, acting prime minister, Ehud Olmert, has publicly backed Livni's stance, and she enjoys majority support within the party. "Go into opposition and you will steer Kadima to victory in the next elections," Olmert is reported to have told Livni. However, he is also reported by Britain's Daily Telegraph to have privately urged her to do precisely the opposite. This prompted Livni to send him a note stating, "I have no intention of being in a unity government headed by Bibi [Netanyahu]—and don't hint that."

Olmert "received the note only after it had been captured on camera during a party meeting," according to the Telegraph.

There is in any case no principled content to the opposition to governing alongside Netanyahu. The main concern is over who will dominate a coalition, and Livni is in reality keeping her options open. Her insistence that "Kadima should be asked to form a government" was followed by the caveat, "but there may be other scenarios."

The chairman of the Kadima parliamentary faction, Yoel Hasson, told Ynet news that the party "must not enter the coalition and make an extreme-right government under Netanyahu seem kosher." But he then added that should Likud offer Kadima a rotating coalition with Livni and Netanyahu taking turns at being premier, then that would "entirely change the picture. That's a completely different story."

One difficulty facing Livni in her bargaining stance is that, if she overplays her hand, then some Kadima ministers have threatened to rejoin Likud—from which Kadima initially split under the leadership of Ariel Sharon. Transportation Minister Shaul Mofaz and Construction and Housing Minister Ze'ev Boim are attempting to push Kadima to join a Likud-led government. According to Army Radio, if she does not then they may rejoin Likud.

Mofaz is a former IDF chief of staff and Likud defence minister. To illustrate how serious his challenge is, last year he contested Livni for leadership of Kadima and lost by only a narrow margin of 1.1 percent of the vote. 

A Likud-Kadima coalition would still need another major partner to give it a majority in the Knesset.

The third-largest party and potential kingmaker is Yisrael Beitenu, with 15 seats. Yisrael Beitenu's main campaign slogan, "No loyalty, no citizenship," is a demand that Arab Israelis, who make up 20 percent of the population, sign a loyalty oath to the state and be required to serve in the armed forces or undertake some other form of national service. Those who refused would be stripped of their citizenship and their right to vote or sit in the Knesset, and transferred to a future Palestinian state in an act of ethnic cleansing. Both Likud and Kadima are nevertheless wooing Lieberman as a potential partner. 

Lieberman has repeatedly stressed his preference for a Likud-led coalition. But his support brings with it many problems. One of Yisrael Beitenu's demands is for a civil marriage. This would end the monopoly of the Chief Rabbinate over both marriage and the process by which non-Jews can convert to Judaism and thereby claim Israeli citizenship. As such, it is an anathema to the religious parties. 

Yisrael Beitenu also wants the Construction and Housing Portfolio along with Israel Lands Administration, an important source of political patronage that is also desired by the religious parties. Lieberman is under investigations for tax evasion, fraud, and money laundering, charges that would prevent him from holding the finance, public security or justice portfolios. 

Another major partner in any National Unity Government or Likud coalition is Shas, a religious party based upon impoverished Jews from the Middle East and North Africa. 

The head of Shas, Eli Yishai, has announced his party's support for Netanyahu as the country's next premier. He is asking for four portfolios and a significant increase in child allowances. Yishai has, however, also met with Transportation Minister Shaul Mofaz, of Kadima, on Sunday.

A measure of the type of horsetrading now taking place is the report by Haaretz that Yisrael Beiteinu is proposing removing the tax and securities authorities from the jurisdiction of the finance minister so that Lieberman can assume the post despite his legal difficulties. Haaretz adds that Lieberman also met with former Shas chairman Aryeh Deri, who "urged him to stay out of a government headed by Netanyahu and to wait instead a few months until Deri himself returns to Shas and to Israeli political life. This summer, Deri will be free to take a cabinet post, following the end of the period of censure occasioned by his conviction for bribery, fraud and breach of trust and subsequent three-year prison term. According to the same sources, Deri will be able to bring Shas into a coalition led by Kadima chair Tzipi Livni, and Yisrael Beitenu will join the government at the same time."

Livni's difficulty in putting together a coalition is rooted in the collapse of her former major partner, Labour, which was beaten into fourth place by Yisrael Beitenu and has indicated that it will sit in opposition in order to rebuild its credibility. The party is busy tearing itself apart, with a leadership challenge to Barak in the cards that will include Amir Peretz, party leader from 2005 to 2007 and defence minister under Ehud Olmert.