Israel's PM-designate Netanyahu in ruling deal with right-wing party

The agreement is the first signed by Netanyahu on his way toward setting up a coalition of hawkish and Orthodox Jewish parties. Both Likud and Yisrael Beitenu left the door open for Foreign Minister Tzipi Livni’s centrist Kadima Party to join, but that appeared unlikely.

Lieberman is widely considered a racist because of his plan to require loyalty oaths from Israel’s Arab citizens. His appointment as foreign minister is seen as potentially harmful to Israel’s international ties.

The new Israeli government taking shape would take a much harder line on Palestinian and Arab issues than the current one, headed by Prime Minister Ehud Olmert.

Netanyahu has criticized the last years U.S.-sponsored peace talks between Israel and the Palestinians, aimed at resolving outstanding differences and reaching a full peace accord between Israel and a new Palestinian state. The talks have made no apparent progress, and on Sunday Olmert blamed the weak Palestinian government for the failure. In turn, Palestinian negotiators blamed Israel, citing expansion of West Bank settlements and hundreds of roadblocks in the West Bank.

Instead of peace talks, Netanyahu favors efforts to bolster the Palestinian economy, leaving issues like borders, sovereignty and Israeli settlements for a later stage. In defiance of standing Israeli commitments to international plans, Netanyahu favors expanding Israel’s West Bank Jewish settlements to allow for "natural growth," accommodating the growing families in the communities.

Palestinians reject that approach and have the backing of the new Obama administration. In her recent visit, Secretary of State Hillary Clinton said several times that the goal of negotiations must be creation of a Palestinian state to live next to Israel in peace.

Lieberman, too, opposes talks toward creating a Palestinian state, but has said he is willing to relinquish control of some territory to the Palestinian Authority - including parts of Israel where many of its minority Arab citizens live.

Speaking in Brussels, Belgium before the Likud-Yisrael Beitenu accord was signed, Palestinian Foreign Minister Riad Malki said the emerging government was "anti-peace," adding, "We have to declare that sadly there is no partner on the Israeli side to negotiate with."

Netanyahu still needs to add several other parties to reach a majority in the 120-member parliament. In the election last month, his Likud won 27 seats, and Yisrael Beitenu adds another 15.

Kadima won 28 seats, but Netanyahu was chosen to form a government because a majority of members of parliament said they favored him over Livni as premier.

Netanyahu’s negotiators are set to meet later Monday with a team from Shas, an ultra-Orthodox Jewish party with 11 seats in the parliament. If Kadima stays outside, Netanyahu is expected to try to bring in smaller hard-line parties like Jewish Home, National Union and United Torah Judaism, giving him a majority of 65.

But several of the parties have conflicting claims and agendas, and signing all of them to agreements is not automatic.