Israel’s President Shimon Peres Friday called upon Benjamin Netanyahu of the Likud Party to form a new government after a group of right-wing parties representing 65 seats in the Knesset backed his designation as prime minister.

Netanyahu, who previously held the prime minister post between 1996 and 1999, delivered an acceptance speech in which he charged Iran with seeking to obtain a nuclear weapon and described it as “the gravest threat to our existence since the war of independence.” He painted a bleak picture of Israel’s future, warning that the global economic crisis threatened to wipe out hundreds of thousands of jobs.

He made no mention of negotiating a settlement with the Palestinians. In the past, Netanyahu has opposed any concessions aimed at furthering the so-called “two-state solution,” comparing a Palestinian state as a danger akin to the Nazis.

In 2005, Netanyahu resigned as Israel’s finance minister in protest over then-Prime Minister Ariel Sharon’s unilateral disengagement plan to withdraw Israeli troops and settlements from the Gaza Strip. He has subsequently called for the “liquidation” of Gaza’s Hamas-led elected government.

The Likud leader appears to have emerged as the primary political beneficiary of an election held February 10 in the shadow of Israel’s 23-day blitzkrieg against the Gaza Strip, which claimed the lives of more than 1,300 Palestinians, a third of them children.

His Likud Party gained 27 seats in the 120-member Knesset, 1 less than the Kadima Party, led by Foreign Minister Tzipi Livni. Placing third was Yisrael Beitenu led by Avigdor Lieberman, a semi-fascist ex-nightclub bouncer from Russia who has advocated the forced expulsion of Palestinian citizens of Israel and suggested that Israel should conduct a nuclear attack on Gaza.

Peres tapped Netanyahu to form a government because of the backing he enjoyed from Lieberman and a bloc of right-wing religious parties. No other party represented in the Knesset indicated support for a Kadima-led government.

Yet in his speech, Netanyahu urged Kadima’s Livni and Labor Party leader Ehud Barak, Israel’s defense minister, to join him in forming a “broad national unity government.”

Lieberman conditioned his own support for Netanyahu on the formation of such a “national unity” government. His party, while pursuing a virulently racist policy towards the Palestinians, is opposed to the religious parties, whose support would be required for a hard-right coalition. 

For her part, Livni rejected joining a Likud-led coalition together with the religious parties. 

“Today the foundations were laid for an extremist right-wing government under the leadership of Netanyahu,” she told Kadima members. “We have not been elected to give legitimacy to this extreme right-wing government…and will head to the opposition.”

Nevertheless, she accepted Netanyahu’s invitation for talks Sunday on a possible coalition. Earlier, Kadima indicated it would have no problem forming a coalition with Lieberman’s semi-fascist party and with Likud itself, providing Kadima was in control. Kadima has also floated the idea of a rotating premiership, reprising a scheme utilized after the 1984 election, in which Labor’s Peres and Likud’s Yitzhak Shamir alternated in power. 

Contradicting Livni’s vow to go into opposition, another leading Kadima member, Dalia Itzik, the speaker of the Knesset, came out in support of a coalition with Likud. "I hope we will now be able to form a broad government, in which Kadima will be a serious leader,” she said. “We didn't achieve so much in order to sit in opposition. I am the last one to say that I don't want a unity government.”

Similarly conflicting responses have come from the Labor Party, with sections of the media reporting that Barak is in favor of a grand coalition—in which he would presumably maintain his defense portfolio—while others in the party leadership argue that joining the government would spell the party’s death knell as it completes its protracted liquidation into the Israeli right. These elements advocate staying in the opposition in hopes of reaping the benefits of an anticipated breakdown of a Netanyahu government.

Palestinian representatives reacted with hostility to the choice of Netanyahu. Hamas, the ruling Islamist party in the Gaza Strip, said that Israel had picked its “most extremist and most dangerous” leader to head the new government. “Hamas doesn't differentiate between Netanyahu and Livni, they are all hostile toward the Palestinian people and they are all terrorists,” Hamas official Ismail Radwan told the Al-Jazeera news network.

Meanwhile, a spokesman for the Palestinian Authority of Mahmoud Abbas in the West Bank told the AFP news agency, “We will not deal with the Israeli government unless it accepts a two-state solution and accepts to halt settlements and to respect past accords.”

This would effectively rule out negotiation with any possible government as none of the leading Israeli parties— Kadima, Likud, Yisrael Beitenu or Labor—meets these qualifications. All of them supported the onslaught against the people of Gaza. All of them have defended Israel’s existing settlements in the occupied West Bank as well as the wall that has been imposed upon Palestinian territory there, and all of them have routinely broken past agreements.

Just two weeks ago, the Israeli military—of which Labor’s Barak is the titular civilian chief—designated 425 acres near a settlement south of Jerusalem as so-called state land, allowing it to be expropriated from the Palestinians for the building of more settlements and security corridors.

While Netanyahu proclaimed the results of the February 10 election as a decisive victory for the Israeli “right”—a term that has an increasingly indistinct meaning as the entire official political spectrum shifts rightward—he has no apparent enthusiasm for forming a government with the 65 Knesset members of the most right-wing and religious parties.

In large measure, this is out of concern that such a government—resting upon parties that explicitly reject any negotiations with the Palestinians—would create political friction between Israel and Washington, upon which the Zionist state is economically and politically dependent to the tune of more than $3 billion in military aid every year.

With the inclusion of Kadima and potentially Labor, the illusion that the Israeli state is committed to continued negotiations towards a “two-state solution” can be better maintained, even as it pursues right-wing militarist policies that preclude any meaningful negotiated settlement.

What is certain is that any coalition government patched together under the leadership of Netanyahu—or for that matter Livni, who clearly still hopes to out-maneuver the Likud leader over the next few weeks—will be one of extreme instability and crisis.

It will preside over continuing aggression against the Palestinians and neighboring states, as well as a deepening economic crisis, as Israel’s export markets in Europe and the US collapse, driving up unemployment and exacerbating the country’s already intense social inequality.