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Victor uncertain in Israel election -

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Reporter: Matt Brown

LEIGH SALES, PRESENTER: Both key contenders in Israel's parliamentary elections are claiming
victory after today's counting of votes.

The Kadima Party of Foreign Minister Tzippi Livni and the Likud, headed by former Prime Minister
Benjamin Netanyahu, have each begun the scramble to form a coalition with minor parties after what
was almost a dead locked vote.

The result signals a major shift to the right. Tzippi Livni's Party remains the country's biggest,
but barely, holding on a one-seat advantage over Benjamin Netanyahu's Likud.

The big development is that Israel's third biggest party is now the far right nationalist group,
Yisrael Beiteinu, highly likely to be included in a coalition.

Ehud Barak's once mighty Labour Party holds just 13 seats.

34 seats are split between the religious Shas Party and seven other minor groups, almost ensuring
political instability.

As Middle East correspondent Matt Brown reports.

MATT BROWN, MIDDLE EAST CORRESPONDENT: Israelis are used to choosing their governments amidst
conflict and uncertainty. And this time they've produced a real cliff-hanger.

Just a couple of weeks ago, supporters of the centrist Kadima party feared a right wing walkover,
but on polling day they came out on top.

Kadima's leader Tzippi Livni leaned heavily on her untarnished reputation, and her determination to
keep negotiating with the Palestinians.

But she might not get a chance because Israeli governments are always made up of a coalition of
parties.

And in this poll, the broader right wing made the greatest gains. The leader of the Likud party,
Benjamin Netanyahu, was hoping to he would be number one.

BINYAMIN NETANYAHU: It'll be a big day. We'll have a good victory. Bye bye, thank you.

MATT BROWN: Despite coming second, he may yet get the chance to implement his promise to put the
brakes on negotiations with the Palestinians.

His party effectively doubled its vote and he could form a wing block with other right wingers.

Avigdor Lieberman from the ultra-nationalist Israel party also made significant gains. His campaign
focussed on confrontation with Israel's Arab population and their political leaders.

But in some ways the clearest sign of the public mood is in the fate of the Labour Party which once
had a near monopoly on power.

While its leader Ehud Barak could still end up in a coalition Government, that won't disguise the
heavy losses his Party has suffered. The final result will be settled by a brutal round of back
room deals.

Whoever Israel's President believes can forge a coalition and keep it together will now be asked to
form a government. In that sense, the struggle to control Israel's Parliament, the Knesset, has
only just begun.

Matt Brown, Lateline.