Although nearly all the votes have been counted, it’s still not clear who has really won the Israeli election.

Tzipi Livni’s Kadima emerged as the largest single party, but the
right-wing parliamentary bloc, led by Likud’s Benjamin Netanyahu,
captured the majority of the Knesset seats. Kadima appears to have won
28 seats to the Likud’s 27, but altogether the right-wing and religious
bloc captured 65 seats in the 120-member Knesset.

At post-election parties Tuesday night, both sides claimed victory. 

Indeed, given the mixed result, both Livni and Netanyahu have a
chance to become Israel’s next prime minister. Like two poker players
in a high-stakes game, it could depend on who blinks first.

The strength in Netanyahu’s hand is that he has the votes to form a
coalition with the hawks, at least some of whom Livni needs to form one
comprised mostly of doves. The snag for Netanyahu is that he
desperately does not want to form a narrow right-wing government that
would be isolated on the international stage.

Livni’s strength is in the moral victory of her party having won the
most seats and the fact that Israel’s president, who has the role of
designating who gets the first crack at forming a government, almost
always gives the leader of the largest party the initial opportunity.

Unfortunately for Livni, the law clearly states that the task should
be conferred on the Knesset member with the best chance of success. To
determine who that may be, the president is supposed to consult with
all the parties represented in parliament. If Netanyahu can keep his
bloc together, a majority will recommend him to President Shimon Peres
in consultations slated for next week.

Still, the game is far from over.

Livni can pressure Netanyahu by refusing to take part in any
government he leads, leaving him only with the right-wingers. Netanyahu
can pressure Livni by refusing to join a national unity government she
leads, denying her a working majority in parliament. Both sides want a
national unity government that cuts across the right-left divide; the
standoff is over who leads it.

Yisrael Beiteinu’s Avigdor Lieberman could be holding the ace.

With 15 seats, Yisrael Beiteinu is now the third-largest party in the Knesset, ahead of Labor, which won only 13.

Although normally counted in the right-wing bloc because of his hard
line against terror and harsh statements on Israeli Arabs, Lieberman
says he is keeping his options open.

Indeed, on some issues Lieberman could find common ground with
Livni. For example, both may favor changing the electoral system and
introducing a form of civil marriage in Israel — issues that resonate
powerfully among Lieberman’s heavily Russian immigrant support base.
Lieberman could get more on these issues from Livni, who has no fealty
to the religious parties, than from Netanyahu, who is committed to
including the Orthodox Shas in his government.

Shas is adamantly opposed both to electoral reform and civil
marriage, which would end exclusive Orthodox religious control over
marriage in Israel. During the campaign, Shas spiritual leader Rabbi
Ovadiah Yosef described casting a ballot for Lieberman as "a vote for
the devil." In his election night speech, Lieberman vowed to get even.

It was significant that Livni’s first informal coalition meeting
Wednesday was held with Lieberman. A few hours later, however, the
Yisrael Beiteinu leader met with Netanyahu.

When push comes to shove, Lieberman probably would find it difficult
to defect from the right-wing bloc to Livni’s camp. Most pundits
believe that the show of keeping his options open is merely a tactical
ploy for Lieberman to get more from Netanyahu — possibly the post of
defense minister — in return for eventually supporting the Likud
leader. Indeed, Lieberman makes no secret of the fact that he feels
part of the "national camp," and that all things being equal, his clear
preference would be for a right-wing government.  

Another question mark over Lieberman is the fact that he is being
investigated on serious fraud allegations. A ban on his serving in
certain ministries could complicate coalition negotiations. 

So what are the some of the coalition options?

* A narrow right-wing government led by Netanyahu and comprised of
Likud, Yisrael Beiteinu, Shas, United Torah Judaism, National Union and
Jewish Home. This 65-seat coalition would be a stable government but
would not give Netanyahu room to maneuver either on the Palestinian or
Syrian peace tracks, and likely would be seen by the international
community, including the new U.S. administration, as intransigent.  

* Lieberman throws his support to Livni, who is able to bring Likud
on board for an emergency national unity government for a fixed time
period comprised of Kadima, Yisrael Beiteinu, Likud and Labor — a
total of 83 seats — dedicated to one goal: changing the electoral
system. Livni, Netanyahu, Lieberman and Labor’s Ehud Barak all said
that the uncertain election results have underscored the need for
reform.

* Livni blinks first and agrees to serve in a Netanyahu-led national
unity government comprised of Likud, Kadima, Yisrael Beiteinu, Shas and
the religious National Home Party — 83 seats.

* Netanyahu blinks first and agrees to serve in a similar government
but with rotation of the prime minister — Livni for two years and then
Netanyahu for two years. This is the compromise many pundits think may
emerge. It gives Livni a chance to be prime minister and allows
Netanyahu to head a government with a degree of peacemaking leeway and
greater international legitimacy. This was the model adopted in 1984 by
Shimon Peres, then head of the Labor Party, and Likud’s Yitzhak Shamir.
The difference then was that the two blocs, center-left and
religious-right, were actually tied at 60-60.

Both Livni and Netanyahu would like to bring Labor into a governing
constellation, with Barak as defense minister, given the huge regional
challenges Israel faces, especially the Iranian nuclear threat. But
because of Labor’s poor showing in the elections, the predominant
feeling within Labor is that the party should stay in the opposition to
rebuild. 

Given these unprecedented election results, will Israel’s leaders be
able to build a coalition to meet the country’s complex needs — a
looming Iranian nuclear threat, terrorist groups armed with rockets on
its northern and southern borders, and a potentially crippling economic
crisis? Or will they have to agree on terms for changing the electoral
system first?

What Livni and Netanyahu do over the next few days could be crucial
not only for the short-term, but for Israel’s long-term well-being.