Israeli PM Benjamin Netanyahu has pledged to form “as broad a government as possible” after his alliance won a narrow election victory.
His right-wing Likud-Beitenu bloc will have 31 seats in parliament – a sharp drop from 42, exit polls suggest.
In a major surprise, the centrist Yesh Atid (There is a Future) party came second with a predicted 18-19 seats, with Labour next on 17.
Analysts now predict weeks of political horse-trading to form a new cabinet.
They say that there is even a possibility that Benjamin Netanyahu’s alliance would end up being in opposition.
Although the Likud-Beitenu alliance is the largest seat-winner, the split of right and left political blocs is a dead heat at 60-60 in the 120-member Knesset, the Israeli Central Elections Committee website showed, with 99.5% of votes counted.
Thirty-two parties were competing under a system of proportional representation. Parties must win at least 2% of the total vote to secure seats.
Full election results are expected on Wednesday, and the official ones will be announced on 30 January.
Speaking shortly after the voting ended on Tuesday evening, Benjamin Netanyahu thanked the voters “for the opportunity to lead the state of Israel for the third time”.
In an apparent reference to his electoral setback, the prime minister promised to reach out to “many partners” to form a wide coalition.
Israeli PM Benjamin Netanyahu has pledged to form as broad a government as possible after his alliance won a narrow election victory
“Tomorrow we start anew,” Benjamin Netanyahu said.
He also said that preventing Iran from obtaining nuclear weapons remained the government’s first challenge.
Other top priorities, he added, would be stabilizing the economy, striving for peace in the region, more egalitarian military and civilian services and reducing the cost of living.
In a brief speech, Yisrael Beitenu leader Avigdor Lieberman said: “I’m happy that our two main missions were achieved. We have ensured a continuity in the rule of the national camp and the continued leadership of Prime Minister Netanyahu.”
Benjamin Netanyahu is now widely expected to seek an alliance with a new nationalist party, Habayit Hayehudi (Jewish Home), which is projected to have 12 seats.
The party – led by Benjamin Netanyahu’s former chief-of-staff Naftali Bennett – has been recently challenging Likud-Beitenu’s dominance on the right.
Analysts say the 18 or 19 seats predicted for Yesh Atid, headed by journalist-turned-politician Yair Lapid, is a stunning result for a newcomer.
Yair Lapid has said he will not join Benjamin Netanyahu’s team unless the prime minister promises to push for peace with Palestinians.
“We have red lines. We won’t cross those red lines, even if it will force us to sit in the opposition,” Yaakov Peri, one of Yesh Atid’s leaders, told Israeli TV.
Labour is expected to get 17 seats – up from just seven in the outgoing parliament. Labour leader Shelly Yachimovich said: “There is a high chance of a shake-up and an end to the Netanyahu government.”
The wider world will examine these results for clues about Israel’s future attitude towards peace talks with the Palestinians or the possibility of a pre-emptive strike on Iran’s nuclear facilities, our correspondent says.
He adds that the truth of the matter is that it’s far too early to make those judgements which will depend on the balance of forces within a future coalition more than on the outcome of the popular vote.
But the sudden and decisive lurch to the right that many predicted has not happened, our correspondent says. The results show that there is plenty of life on the left and the centre of Israeli politics too.
Benjamin Netanyahu, 63, has been in office since the 2009 election. He also served one term as prime minister between 1996 and 1999.
In recent years he has accelerated home construction in the West Bank and east Jerusalem, drawing anger from Palestinian leaders and criticism from Western partners.
However, unlike in previous elections, the campaign focused largely on social and economic issues, rather than the prospects for a permanent peace agreement with the Palestinians.
There have been unprecedented protests against the rising cost of living and a recent report said nearly one in four Israelis lived in poverty.
A Haifa court has ruled that the state of Israel was not responsible for the death of US activist Rachel Corrie, who was killed in the Gaza Strip by an Israeli army bulldozer in 2003.
Rachel Corrie’s family had brought a civil claim for negligence against the Israeli ministry of defence.
The judge said the 23-year-old’s death was a “regrettable accident” and that the state was not responsible.
Rachel Corrie had been trying to stop Palestinian homes being pulled down in Gaza.
Judge Oded Gershon, presiding at the court in the town of Haifa, said Rachel Corrie had been protecting terrorists in a designated combat zone.
He said the bulldozer driver had not seen her, adding the soldiers had done their utmost to keep people away from the site.
“She [Corrie] did not distance herself from the area, as any thinking person would have done.”
A Haifa court has ruled that the state of Israel was not responsible for the death of US activist Rachel Corrie
The judge ruled the state of Israel did not have to pay any damages.
The Corries had requested a symbolic $1 in damages and legal expenses.
They had accused Israel of intentionally and unlawfully killing their daughter, and failing to conduct a full and credible investigation.
An Israeli army investigation in 2003 concluded its forces were not to blame for Rachel Corrie’s death.
Cindy and Craig Corrie travelled to Israel from the US to hear the ruling along with a group of friends and activists.
After the ruling, Cindy Corrie told a news conference they wanted to see more accountability from the state of Israel, saying they had been “deeply troubled by what we heard today”.
“From the beginning it was clear to us that there was… a well-heeled system to protect the Israeli military, the soldiers who conduct actions in that military, to provide them with impunity at the cost of all the civilians who are impacted by what they do,” she said.
She said she believed at least one person in the bulldozer had seen their daughter, and that Rachel’s death “could have been and should have been avoided”.
She added: “I believe this is a bad day not only for our family, but a bad day for human rights, for humanity, for the rule of law and also for the country of Israel.”
Israeli government spokesman Mark Regev says that, according to court evidence, the driver did not see Rachel Corrie.
“If you read the seven pages of transcript by the judge after hearing all the evidence for months now, he says that the tractor drivers moved away from the demonstrators on a number of occasions, that the demonstrators took, he says, unreasonable, illogical action, putting themselves in danger.”
“It’s clear by the Corrie family’s own expert – they nominated an expert to come to the court – he himself, their representative, said that it was impossible for the driver to see her.”
The Corrie family’s lawyer has said they will appeal against the ruling to Israel’s supreme court.
Rachel Corrie was a committed peace activist even before her arrival in the Gaza Strip in 2002.
She had arranged peace events in her home town in Washington State and become a volunteer for the pro-Palestinian International Solidarity Movement (ISM).
In 2003, Rachel Corrie was in the town of Rafah in the southern Gaza Strip as part of a group of ISM protesters.
They were acting as human shields to try to stop the Israeli army demolishing Palestinian homes and clearing land around Rafah.
The Israeli army argued the area was being used by militants and that the protesters should not have been in a closed military zone.
The army’s investigation found that Rachel Corrie was not visible and that she was killed by debris falling on her.
But Rachel Corrie’s supporters say it is impossible that the bulldozer driver did not see her.
“The bulldozer had a clear line across open ground while it drove towards her, relatively slowly, 20 or 30 metres or so, and even the estimation of the bulldozer’s line of sight… would clearly suggest that during that time the bulldozer driver must have seen Rachel,” said activist Tom Dale, who was protesting alongside Rachel Corrie on the day she was killed.
Pictures taken on the day Rachel Corrie died show her in an orange high-visibility jacket carrying a megaphone and blocking the path of an Israeli military bulldozer.
A collection of Rachel Corrie’s writings was turned into a play – My Name Is Rachel Corrie – which has toured all over the world, including Israel and the Palestinian territories.