Netanyahu claims victory in Israel
The exit polls projected 12 seats for Jewish Home.
Full election results are due by tomorrow morning and official ones will be announced on January 30th. After that, President Shimon Peres is likely to ask
Mr Netanyahu, as leader of the biggest bloc in parliament, to try to form a government.
The former commando has traditionally looked to religious, conservative parties for backing and is widely expected to seek out self-made millionaire Naftali Bennett, who heads the Jewish Home party and stole much of the limelight during the campaign.
Political sources said before the election that Mr Netanyahu might approach centre-left parties in an effort to broaden his coalition and present a more moderate face to worried allies.
British Foreign Secretary William Hague warned Israel today it was losing international support, saying prospects for a two-state solution to the Israeli-Palestinian conflict were almost dead because of expanding Jewish settlements.
US-brokered peace talks broke down in 2010 amid mutual acrimony. Since then Israel has accelerated construction in the West Bank and east Jerusalem - land the Palestinians want for their future state - much to the anger of Western partners.
Today's vote is the first in Israel since Arab uprisings swept the region two years ago, reshaping the Middle East.
Mr Netanyahu has said the turbulence, which has brought Islamist governments to power in several countries long ruled by secularist autocrats, including neighbouring Egypt, shows the importance of strengthening national security.
He views Iran's nuclear programme as a mortal threat to the Jewish state and has vowed not to let Tehran enrich enough uranium to make a single nuclear bomb - a threshold Israeli experts say could arrive as early as mid-2013.
Iran denies it is planning to build the bomb, and says Israel, widely believed to have the only nuclear arsenal in the Middle East, is the biggest threat to the region.
The issue barely registered during the election campaign, with a poll in Haaretz newspaper on Friday saying 47 per cent of Israelis thought social and economic issues were the most pressing concern, against just 10 per cent who cited Iran.
One of the first problems to face the next government, which is unlikely to take power before the middle of next month at the earliest, is the stuttering economy.
Data last week showed the budget deficit rose to 4.2 per cent of gross domestic product in 2012, double the original estimate, meaning spending cuts and tax hikes look certain.