Prime Minister Benjamin Netanyahu could have no choice but to form a narrow 61-member government after Yisrael Beytenu leader Avigdor Lieberman raised objections to the coalition agreement signed with United Torah Judaism, saying it could be a deal breaker.
Coalition negotiations entered the final stretch, with three days to go before the extended deadline President Reuven Rivlin gave Netanyahu to form a new government.
Until then, Netanyahu will have to solve the dispute between Shas and the Bayit Yehudi, as well as recruit Lieberman's support.
Netanyahu met with Shas leader Aryeh Deri late Saturday night, after he agreed earlier this week to the party's coalition demand to cancel the VAT placed on staple foods. Deri has already announced that he is no longer demanding control of the Interior Ministry, and is expected to be appointed Economy Minister instead, replacing Bayit Yehudi leader Naftali Bennett.
Along with the Economy Ministry, Deri is also expected to receive the Religious Affairs portfolio – however, this issue is a sticking point in coalition talks, as Bayit Yehudi vehemently objects to giving Shas total control of the office.
Sources within the Likud examined several options for resolving the dispute, including appointing a Deputy Religious Affairs Minister from the Bayit Yehudi, but Deri has stressed in recent meetings that he does not have any interest in having a deputy, as the division of powers between minister and deputy would be unclear.
If this dispute is resolved, and the cancellation of VAT on staple foods is included in the agreement, it is likely that Shas will be the next party to join the new government.
Bennett's party, meanwhile, will receive the three following portfolios: Education, Agriculture, Sport and Education. However, the Bayit Yehudi leader insists on a budget increase of NIS 1 billion to the entire education system and as part of this increase, demands that the extra funds for the Haredi education institutes be taken from the Treasury and not from the budget for his ministry.
Meanwhile, after Netanyahu promised Lieberman he would remain as foreign minister, and that MK Sofa Landver will continue as immigrant absorption minister, the Yisrael Beytenu leader says that the agreement signed with the United Torah Judaism (UTJ) party last week is a deal breaker.
The coalition agreement with UTJ effectively cancels out the achievements of the previous government in which Lieberman served. Under the deal, the new government will freeze ongoing reforms to Israel's conversion laws, cancel the cuts to children's benefits and revoke the criminal penalties in the universal enlistment law.
Lieberman confirmed in closed-door meetings that the deal with UTJ was an obstacle to his joining the coalition. "The agreement that was signed is a big problem for us," he said.
Another barrier standing in Lieberman's way is Netanyahu's opposition to the foreign minister's demand of making MK Orly Levy-Abekasis, number two on the party's list, chairman of the Knesset's Labor, Welfare and Health Committee.
Lieberman still insists on making the Yisrael Beytenu party platform a significant part of the government's overall policies, including principles such as toppling the Hamas rule in Gaza and the continued construction in Jewish neighborhoods in Jerusalem.
Difficult negotiations with potential coalition partners forced Netanyahu to show more flexibility than he would have wanted to show, and agree to fund reforms demanded by the right-wing parties that could amount to NIS 8-9 billion a year.
According to the agreement with Kulanu party leader Moshe Kahlon, who is the future finance minister, the new state budget will be approved after Sukkot and will be brought to a vote as a bi-annual budget. Until then, Kahlon, will have to find quite a few sources of funding for commitments made by Netanyahu in the different coalition agreements.
UTJ decided not to fight over portfolios in the upcoming government and announced ahead of the talks it was willing to settle for a deputy minister position in the Health Ministry and for the chairmanship of the Knesset's Finance Committee. However, the party's budgetary demands were much bigger and were incorporated into the coalition agreement it signed with the Likud.
According to political sources, at least NIS 1 billion have been allocated for Haredi education institutes as part of the coalition agreement with UTJ.
Yuval Karni and Akiva Novika contributed to this story.