Unless the election results on January 22 prove the pollsters wrong, the post-election negotiations between party heads and President Shimon Peres will be only ceremonial. Benjamin Netanyahu will be the chairman of the largest party and therefore most likely to be invited by Peres to assemble a coalition for a third time.
In assembling a coalition, Netanyahu will face a diverse set of choices. The more choices he has, the easier it will be for him to shape the government in a way that will facilitate the policies he wants to implement.
The immediate challenge will be to assemble a coalition that, unlike the current one, will support drastic cuts in government spending and pass a state budget that has undergone a strict diet. This is a challenge that can be met, as parties will have to consent to basic guidelines in order to join Netanyahu's coalition and the budget will reflect those agreed-upon parameters.
And what about the diplomatic arena? The next government will likely work to maintain calm in the Gaza Strip, even if it involves some concessions to Hamas. The government will also take steps to prevent the collapse of the Palestinian Authority (including the repaying of withheld tax revenues). Israel will do this in order to ensure continued security cooperation with the Palestinians and to avoid having to re-assume responsibility for managing the West Bank.
Netanyahu will never be willing to pay the price of a permanent deal. However, he may be willing to consider an interim agreement with the aim of ultimately achieving a permanent deal. On Iran, Netanyahu will seek to maintain the threat of using force, all the while coordinating with the Obama administration. On the diplomatic front, he will try to curb the West's growing dissatisfaction with Israel, and try to convince the world that the declaration of plans to build thousands of new housing units in the West Bank (including in the E1 area near Jerusalem) does not mean any actual concrete is being poured.
Naturally, Netanyahu will want to ensure that he has the maximum freedom of action in diplomatic and defense policy. If he wants to make pragmatic moves in these areas, he can strike coalition deals with the center-left parties, which would give him a majority over the Feiglinites (followers of the far rightist Moshe Feiglin) within Likud and other far-right elements. If Netanyahu wants to take hawkish steps, he can always rely on support from the far-right parties, even if they are not a part of the coalition.
The lesson that Netanyahu learned during his first term in the 1990s — not to assemble a narrow government and instead seek national unity — was partially implemented during his second term, mainly through the special relationship that he developed with outgoing Defense Minister Ehud Barak. I am doubtful that Netanyahu will continue this trend when assembling the next government.
While the composition of the next government will certainly depend on the number of seats that each party wins in the election, the most comfortable path would be for Netanyahu to assemble a coalition with the Labor party. The price would be putting Labor Chairwoman Shelly Yachimovich in charge of the Finance Ministry. Netanyahu is still toying with the idea that Yachimovich would be satisfied with the Welfare and Social Services Ministry, but that is highly unlikely.
But to get the roughly 20 seats that Labor would bring, Netanyahu would have to pay an even higher price. Together, Likud-Beytenu and Labor would nearly have enough seats to have a Knesset majority, meaning that theoretically they would need to add only one small party to form a coalition. But there is no chance that this is how the coalition will be created, due to the fact that this would leave Netanyahu dependent on members of his own party who he views as contrarian.
Netanyahu can also not afford to turn his back on the ultra-Orthodox parties, because, unlike Labor, they are not seeking to lead the government. When they are in the coalition, they behave relatively disciplined and when they are in the opposition, they vote against the government. The ultra-Orthodox parties are the permanent insurance policy for prime ministers during times of political distress and therefore Netanyahu can't ignore them.
If Likud-Beytenu and Labor do form the basis of the next coalition, Netanyahu could add Yair Lapid's Yesh Atid to the mix, mainly because Yesh Atid has no special coalition demands. If Yesh Atid's only condition is that the government be willing to resume negotiations with Palestinian Authority President Mahmoud Abbas, this can be agreed to without hesitation.
Netanyahu would prefer not to have Hatnuah Chairwoman Tzipi Livni in the next government. This is partly because he can't give her the Foreign Ministry (Netanyahu will keep this post for himself until Lieberman can come back) and also because Labor, Yesh Atid and Hatnuah could pose a counterweight to Likud-Beytenu and Netanyahu can't allow himself to form a coalition in which the center-left bloc is larger than his ruling party.
The next government, led by Likud-Beytenu, will include Labor, Yesh Atid, Shas and United Torah Judaism. Netanyahu will be prime minister and foreign minister. Yachimovich will be finance minister. The defense minister could be an outside appointee like Barak or Dan Meridor. A government like this could help Netanyahu achieve his limited diplomatic goals, which include ensuring Israel's survival without revolutionary new policies or unnecessary bloodshed, while hoping that the demographic threat (the loss of the Jewish majority) will hold off until the next term.