Israeli Prime Minister Benjamin Netanyahu has pledged to form "as broad a government as possible" after his alliance won a narrow election victory.
His right-wing Likud-Beitenu bloc will have 31 seats in parliament - a sharp drop from 42, exit polls suggest.
In a major surprise, the centrist Yesh Atid (There is a Future) party came second with a predicted 18-19 seats, with Labour next on 17.
Analysts now predict weeks of political horse-trading to form a new cabinet.
They say that there is even a possibility that Mr Netanyahu's bloc would end up being in opposition.
Thirty-two parties were competing under a system of proportional representation for the 120-member Knesset.
Parties must win at least 2% of the total vote to secure seats.
Full election results are expected on Wednesday, and the official ones will be announced on 30 January.