Tel Aviv  - Whether opposition leader Benjamin Netanyahu or Foreign Minister Tzipi Livni assumes the task of forming the next Israeli government, a tough and complicated process lies ahead.

The close results of Tuesday's elections created a political limbo and prompted both the underdog Livni of the centrist Kadima and the favourite Netanyahu of the hardline Likud to claim victory.

Livni, 50, said she won because her party won the most (28) mandates and retained its position as the largest party in the 120- seat Knesset.

Netanyahu, 59, said he won because his Likud more than doubled its mandates to 27, and the right-wing bloc led by it grew from a minority of 50, to a majority of 65 seats in the Israeli parliament, giving him decidedly better chances of forming a coalition.

The right-wing bloc, in opposition for the past three years, has made a sweeping comeback and now finds itself poised on the fringes of power. Avigdor Lieberman, a hawk whose campaign singled out Israel's Arab citizens and demands zero-tolerance toward Hamas in Gaza, Hezbollah in Lebanon and Iranian nuclear abilities, stands out as the head of a bolstered ultra-nationalist party.

The right-wing is now nearly as strong as in 2003, when it had a 69-seat majority in the Knesset, of which the then ruling Likud of premier Ariel Sharon had 38 mandates.

Sharon had earlier crushed former premier Ehud Barak of the left- centre Labour Party, in separate February 2006 prime ministerial elections, held just months after the outbreak of the second Palestinian uprising during a deadlock in peace negotiations. Amid the ongoing Intifada, his Likud went on overwhelmingly to overtake the Knesset in parliamentary elections two years later.

Then too, leaders and media in Europe, Arab states and elsewhere in the world reacted with shock, alarm and pessimism to the swing to the right in Israel.

Political experts in Israel said the sharp pull to the right in these elections was equally a reaction to absent faith in the peace process and renewed violence in the form of increased rocket attacks from Gaza, following the rise of the radical Islamic Hamas movement in Palestinian parliamentary elections and its subsequent take-over of the strip.

While the right-wing blocking majority further makes any breakthrough in the peace process in the coming years seem out of reach, the virtual tie between Livni and Netanyahu has also sparked fears of internal political paralysis in Israel.

Israeli President Shimon Peres, who has seven days within publication of final results to appoint a candidate for forming the next government, faces a tough decision. The most likely candidate would be Netanyahu, but at the same time it will be hard for Peres to ignore Livni's unexpected achievement in obtaining the most mandates.

At this point, there are two main viable possibilities for a coalition: A right-wing team headed by Netanyahu's Likud, or a broad unity government centering around both the Likud and Kadima - whether headed by Netanyahu, Livni, or both in a two-year rotating premiership. Such a unity government could also include the ultra- Orthodox Shas, the Labour Party, Lieberman or all of them.

The first scenario, however, is undesirable for Netanyahu, who would not want to be dependent entirely on the whims of Lieberman and other, smaller far-right parties. It would also strain his relations with the new US administration of Barack Obama and with Europe.

The second scenario - a broad unity government - is far more enticing, not only for Livni, but also for Netanyahu in tackling the key challenges he has listed as facing Israel.

If he wants to strike at Iran's nuclear facilities to prevent it from achieving the ability to create an atom bomb, a broad consensus rather than a narrow right-wing government would serve him better. If he wants to attack Hamas in Gaza, he could use the expertise of either Defence Minister Ehud Barak of Labour or Kadima's former army chief Shaul Mofaz. And amid the world financial crisis, a broad coalition would facilitate passing the budget and economic stimulusplans.

But why would Livni agree to join a unity government headed by him, if - citing her upset even if narrow election win - she could have a stint as premier under a rotation agreement and can threaten with going to the opposition if not granted that demand?

Vice versa, Netanyahu, backed by Lieberman and the right-wing bloc, too has little incentive to join a unity government headed by Livni only.

"If Netanyahu does not want a right wing government which will embarrass him as well as the entire country in front of the world, and Livni acts decisively, she will be able to demand a rotating agreement," said Sima Kadmon, a commentator for the leading Israeli Yediot Ahronot daily Wednesday.

Rotation therefore seems a possible compromise, but only the next days or weeks will tell.

Israel's political system, meanwhile wrote the Ma'ariv daily, has created a "stalemate," a "dead end," a "real entanglement." dpa