Israeli Foreign Minister Tzipi Livni and opposition leader Benjamin Netanyahu have each claimed victory in Tuesday's parliamentary election.
With about 90 percent of the votes counted early Wednesday, Ms. Livni's centrist Kadima Party was leading Mr. Netanyahu's Likud Party by two seats in the 120-seat assembly.
Ms. Livni says the Israeli people chose Kadima to lead the next government. She appealed to Mr. Netanyahu to join a national unity coalition she would lead.
Mr. Netanyahu says he expects to be the next prime minister. He says Likud and other nationalist and religious parties won a clear majority in parliament.
Partial results indicate Likud and its allies could win 64 parliamentary seats, making it difficult for Ms. Livni to form a governing coalition.
Once the results are finalized, Israel's president will pick the person he thinks best able to form a coalition. He is not bound to pick the leader of the largest party.
Israel's ultranationlist Yisrael Beiteinu party is projected to become the third largest in parliament. Party leader Avigdor Lieberman says he does note rule out an alliance with Kadima or Likud.
A Palestinian official in the West Bank, Nabil Abu Rudineh, says President Mahmoud Abbas is ready to continue dealing with Ms. Livni, who served as Israel's chief negotiator in recent peace talks.
But, the official says there can be no negotiations with any Israeli government that continues Jewish settlement expansion in the West Bank.
Voter turnout in Israel was about 65 percent, higher than the last parliamentary polls in 2006, despite stormy weather on election day.
Mr. Netanyahu has vowed to crush Hamas militants who control the Gaza Strip and is wary of conceding territory to Palestinians. Ms. Livni says she supports the creation of a Palestinian state alongside a secure Israel.
Some information for this report was provided by Reuters.