Ronen Zvulun / Reuters, file

Yair Lapid, right, stands behind Israeli President Shimon Peres, who is seated next to Benjamin Netanyahu, at a reception in Jerusalem on Feb. 5. Lapid, a relative newcomer, has been able to gain numerous concessions from the veteran Netanyahu as the latter struggled to form a coalition government.

News analysis

TEL AVIV -- It is no surprise that Benjamin Netanyahu will be Israel's prime minister for the third time. The makeup of his Cabinet, however, may be jarring, especially to him.

Two days before the deadline imposed by election rules, he overcame the final obstacles and reached a compromise with Yair Lapid, the political novice who heads the second-largest party in the Israeli Knesset.

The agreement, which is expected to be signed Thursday, gives his coalition 68 seats out of 120 in the new parliament, which should be sworn in next week.

Lapid may be a novice, but analysts here say he achieved major victories over the prime minister. He demanded that there be a maximum of 20 Cabinet ministers instead of the bloated 30.

Struggling to find seats for his party members, Netanyahu fought tooth and nail against Lapid and lost. There are now likely to be 22, including Netanyahu.

Netanyahu was determined to keep the education portfolio for his own party. Lapid insisted on having it and appears to have won.

It didn't all go Lapid's way, but the message to the voters is clear: Lapid is the man to watch. Indeed, the former television host has already let it be known that he wants to be Israel's next prime minister.

If Lapid, and for other reasons Naftali Bennett and Avigdor Lieberman, were the winners in the Jan. 22 elections, the losers, to a large extent, were the ultra-orthodox religious parties. The Haredim, as they are known here, who form 10 percent of Israel's population and are by far the fastest-growing group, have no seat at the Cabinet table.

That means the government has the opportunity to cut the funds devoted to ultra-orthodox institutions such as their study yeshivas and schools, which in the 2012 education budget totaled close to $1 billion.

Large state subsidies go to their traditionally large families and fund the men who study the Torah full time. These are some of the issues that upset Lapid and his voters, and that now, as Israel's minister of finance, he would have an opportunity to change. That's why control of the education ministry was so important to him: Most yeshiva funding goes through that ministry.

Bad blood
This is not what Netanyahu wanted. He wanted his usual rightist/ultra-orthodox coalition. Instead, through failed brinksmanship he ended up with exactly the opposite: a coalition of his rightist party, Likud-Beitenu, with the left and center, as well as with his natural partner, another new young politician, Naftali Bennett, who leads a rightist party that coordinated every move with Yair Lapid.

Blame the wife. That's what the analysts here say. Bennett, who was once Netanyau's chief of staff, had a major falling out with Sara Netanyahu, ending in bad blood between him and the prime minister.

The natural coalition after the January elections was between the two rightist parties, Netanyahu's 31 seats and Bennett's 12 seats, which would have guaranteed them power if allied with the ultra-orthodox parties. Experts say Netanyahu should have drafted Bennett to the cause immediately.

Instead Netanyahu miscalculated and, reportedly because of personal animus, tried to form the basis of a government without him.

That drove Bennett into the arms of Lapid, where he stayed. The two new young leaders displayed a virtue rare in politics: loyalty to an ideological opponent, based on the power of their word.

Result: Netanyahu has what he most wants, the position of prime minister. But he has the Cabinet that he least wants. A rocky term awaits him.

NBC News' Martin Fletcher is the author of "The List,""Breaking News" and "Walking Israel."

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Ronen Zvulun / Reuters

Israeli Prime Minister Benjamin Netanyahu signed his first coalition partner in centrist Tzipi Livni, a move that could get a nod of approval from peace activists and U.S. President Barack Obama. But how cohesive any message of peace will be depends largely on the makeup of the rest of the coalition.

News analysis

TEL AVIV -- In the Middle Eastern bazaar, the first sale of the day is prized beyond any other. It is called the “siftach,” and to clinch the deal the seller gives a discount to the buyer, to launch a good day’s business.

In the case of the agreement announced Wednesday between Likud Beitenu leader Benjamin Netanyahu and Tzipi Livni, leader of  “Hatnua” (Movement) to join a coalition government, Netanyahu was desperate to get one of the several political parties he is negotiating with to be the first to reach agreement.

So to entice Livni to sign, he sweetened his offer to include what Livni dearly wanted: the role of chief peace negotiator with the Palestinians, in addition to the guarantee of the post of justice minister for her and the post of minister of the environment for another member of her party.

Her brief in a new Netanyahu government, then, would be to launch a new peace process with the Palestinians, according to the published agreement, “with the aim of reaching a settlement with them that will put an end to the conflict.”

The significance of this is that the responsibility passes from the foreign minister, who loudly proclaimed that he did not believe in peace with the Palestinians, to Livni, who does.

In addition to being the first step toward forming Netanyahu’s third government, it allows him to send a signal to U.S. President Barack Obama, expected in Israel on his first state visit next month, that he is serious about moving toward peace and that Obama should support him; Netanyahu’s relationship with Obama is famously fraught.

What this means in practice, however, is far from clear. It depends on who else joins Netanyahu and Livni in building a coalition government. Pundits expect Netanyahu to focus his attention next on the Labor party, as well as a couple of the religious Jewish parties, and only then to go for broke -- to offer a role to the two young newcomers, one on the left and one on the right, who have surprisingly found common cause.

The question: Can Netanyau pull off a brilliant ploy and form a government without the second- and third-largest parties, Yair Lapid’s ‘Yesh Atid’ (There is a Future) and Naftali Bennett’s Bait Hayehudi (Jewish Home)?

Or is it so brilliant? When the voters speak clearly and give the second- and third-largest number of votes to two new parties with new leaders and a large majority of new members of parliament, shouldn’t this call for change be reflected in any new government?

The problem is, and this brings us back to Livni’s role as peace negotiator, Bennett and Lapid, who agree on many social and economic issues, could not be further apart on the central question: What about the Palestinians? Bennett is absolutely clear: No Palestinian state. Lapid is with Livni.

So is there a real change in the Israeli government’s position vis a vis peace talks? As always, Netanyahu is hard to read. Does he really want Livni to take Israel down the road to compromise and peace? Or does he just want to form a new government so badly that he will offer any enticement to make it happen?

Cynics argue the latter. Some others believe that maybe a miracle is at hand.

And as Israel’s first president, David Ben Gurion, once said: To be a pragmatist in Israel, you have to believe in miracles.

Martin Fletcher is the author of "The List," "Breaking News" and "Walking Israel."

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This story was originally published on Thu Feb 21, 2013 4:42 AM EST