LOS ANGELES, CA (Catholic Online) - Netanyahu's Likud-Yisrael Beitenu alliance was set to capture about 31 of the 120 seats, significantly fewer than the 42 it held in the outgoing parliament and below the forecasts of recent polls.

Netanyahu's weak results marked a major setback for his policies. He may have to make new concessions to restart long-stalled peace talks with the Palestinians.

The "hawkish" and "dovish" blocs in Israel were split about evenly in the polls.

Netanyahu's most likely partner was Yesh Atid, or There is a Future, a party headed by political newcomer Yair Lapid, who said he would only join a government committed to sweeping economic changes and a resumption of peace talks with the Palestinians.

Netanyahu in his first address said that he vowed to form as broad a coalition as possible. Among the promised changes are reforming the contentious system of granting draft exemptions to ultra-Orthodox Jewish men. He also promised the pursuit of a "genuine peace" with the Palestinians.

Netanyahu called Lapid and offered to work together. "We have the opportunity to do great things together," Netanyahu was quoted as saying.

Netanyahu could put together a shaky majority of 61 seats - but it would be virtually impossible to keep such a narrow coalition intact, though it was possible he could take an additional seat or two as numbers trickled in throughout the night.

Traditionally the dominant issue in Israeli politics, peacemaking with the Palestinians had been pushed aside. Netanyahu portrayed himself as the only candidate capable of leading Israel at a turbulent time.

Concessions to Lapid will seemingly alienate his religious allies. Lapid said he would not be a "fig leaf" for a hard-line, extremist agenda said in an interview last week.

Lapid's performance was the biggest surprise of the election. The one-time TV talk show host and son of a former Cabinet minister was poised to win 19 seats, giving him the second-largest faction in parliament.

A self-proclaimed defender of the middle class, Lapid vowed to take on Israel's high cost of living and to end the contentious system of subsidies and draft exemptions granted to ultra-Orthodox Jews while they pursue religious studies. He says that the expensive system has bred widespread resentment among the Israeli mainstream.

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