Israel's Election: Netanyahu Holds On, Center Does Well
The easiest way out would be to persuade Lapid to sit with the religious parties or with Bennett. In that case, Bennett's party would be the smallest of the three partners and thus have far less leverage. Moreover, as a Dati party, Bennett's party might be willing to cooperate on such things as fewer subsidies for the Haredim and more military service. (This might in turn scare Shas and Yahadut ha-Torah to give lots of concessions to go into the coalition.)
At any rate, tough weeks of negotiations lie ahead to create a coalition after President Shimon Peres designates Netanyahu as having the first option to form a government. He will then have three weeks to do so. One of Netanyahu's main arguments would be: Join me or I'll have to depend on the far right and you don't want that to happen.
If you are really interested, here are the details:
A. Netanyahu's decision to combine with Avigdor Lieberman's party was probably a mistake, driving moderate liberal voters to Lapid. With Lieberman being indicted, his party would have gone into crisis and many or most of its voters would have gone over to Netanyahu without him having to give anything in return.
B. On the right of Netanyahu's party, he lost probably to Bennett among those who wanted to express their harder-line views or believed that Bennett would pull Netanyahu to the right in a coalition. That might have amounted to 3-5 seats Netanyahu might otherwise have obtained. Still, the much-exaggerated rise of the right-wing failed to materialize, especially when one adds that Bennett's party is the only one that might be said to directly represent the Dati (Modern Orthodox) sector. In the 2000 elections, the two small, far-right parties got 9 seats, comparable to Bennett's 11.
C. In the center-left, voters had to calculate whether to vote for Livni, Lapid, or Livni's old party Kadima. The fact that Lapid is an attractive candidate, seems like a nice guy, and has no record to turn people against him helped his cause. In contrast, Livni is not personally popular and has failed on several occasions.
D. On the left, people had to decide whether they wanted to cast anti-Bibi votes with Labor or Meretz. A Meretz slogan, sniping at Labor, described the party as "your real voice against Bibi." Wanting to show a tougher opposition stance, a number of people voted for Meretz thus hurting Labor. (One might calculate that as involving two to four seats.)
If Labor becomes the opposition leader, as seems likely, it cannot depend on the close, consistent cooperation of any other party. Shelly Yachimovich, the party's leader, has already said she would try to block Netanyahu from forming a coalition. (Incidentally, if she succeeded it would lead to new elections in which Netanyahu would probably do better as people voted to ensure a strong government be formed.)
E. Short-lived centrist parties like Lapid's and Livni's have been a feature of Israeli politics since 1977. Every such party has ultimately failed after a promising start, with the latest example being Kadima itself which went from a ruling party to virtual oblivion in less than a decade. Lapid's own father also headed such a party which fell apart without ever accomplishing anything.
F. Arab voting was down and while this may express some dissatisfaction with Israel's existence, it also means that Arabs have little leeway to affect policies. This is a key reason why Arabs are about 20 percent of the population but only won about 7 percent of the seats, though another is that a lot vote for Zionist parties for various reasons. Arab disunity has also prevented them from becoming more of a political factor. In 2000, with a smaller proportion of the population, the Arab parties elected 12 parliamentarians, the same number as in 2013.
G. As a sign of their social integration, for the first time since the massive immigration from the USSR and ex-USSR in the 1990s there was no party focused on this group, since Lieberman's party didn't run separately.