The ruling Kadima party narrowly beat its rivals in Israel's election on Tuesday, a crucial vote seen as a referendum on plans to finalize the borders of the Jewish state.
Acting Premier Ehud Olmert had hoped for more support
Acting premier Ehud Olmert's party secured 28 of the 120 seats in the next parliament, Israel's Election Commission said, fewer than had been projected ahead of the vote.
The center-left Labor party, predicted to come out as the second strongest party in parliament won 20 seats, against 12 for the far-right party Yisrael Beitenu and only 11 for the Likud party of former prime minister Benjamin Netanyahu.
The figures are being interpreted as a setback for Kadima whose campaign team said that anything below 35 would be a disappointment and will complicate Olmert's efforts to steer through his plan to fix Israel's final borders.
But Kadima officials put on a brave face as the results were filing in.
Israeli Foreign Minister Tzipi Livni
"We are, despite everything, Israel's largest party," Foreign Minister Tzipi Livni told reporters. "Our ambition is to form a stable coalition for the full four years so we can carry out our policies."
Senior party strategist Lior Horev said it was a remarkable achievement for a party which was only formed in November by Prime Minister Ariel Sharon who now lies in a coma in a Jerusalem hospital.
Labor happy with result
"All in all we are very happy with the results," Horev said. "It was unimaginable three months ago. The Likud were defeated because of Netanyahu's aggressiveness."
Supporters of the Israeli Labor Party leader Amir Peretz
Labor hailed its better than expected showing in the exit polls.
"We've snatched a major victory," Danny Yatom, a member of the outgoing parliament told AFP at the party's Tel Aviv headquarters.
The election was being held on the day that Palestinian MPs approved a cabinet led by Hamas, which advocates the destruction of the Jewish state, strengthening Israel's determination to act unilaterally in the perceived absence of a partner in the peace process.
With the legacy of Sharon looming large, Olmert had urged Israel's five million voters to turn out en masse in an election which shattered the traditional mould of Israel's two-party system.
Low voter turnout
Few voted on Tuesday
But turnout was sharply down on the record low of 2003 at the nation's 8,280 polling stations, where security was tight to prevent attacks by Palestinian militants.
In a newspaper opinion piece, Olmert spelled out how he planned to dismantle all settlements which lie outside the massive separation barrier Israel is building across the West Bank in an echo of last year's dramatic uprooting of Jews from the Gaza Strip.
"We must preserve the main settlement blocs in Judaea and Samaria (West Bank) and we will fix the route of the security barrier beyond which we will no longer remain," Olmert wrote.
As Hamas won the overwhelming approval of Palestinian MPs for its 24-strong cabinet, its incoming premier Ismail Haniya made clear Olmert's redrawn map was unacceptable.
"If the occupation wants to leave we will not stop them but we will not accept fait accomplis being imposed on us such as the annexation of the settlement blocs," he said.
Some Palestinians want to negotiate
The Palestinian Authority meanwhile called on the next Israeli government to resume stalled negotiations to find a solution to the Middle East conflict. "We call on the next government, whatever it is, to immediately resume negotiations as advocated by (Palestinian) president Mahmud Abbas," chief Palestinian negotiator Saeb Erakat told AFP. "We respect the democratic choice of the Israeli people. I expect that the next government will be largely composed of Kadima and the Labor party.