On Saturday evening President Shimon Peres gave Prime Minister Netanyahu a two-week extension, after his initial month-long period for coalition formation had elapsed, in which to form a government. If Netanyahu, leader of the Likud Beitenu joint list of Likud and Israel Beitenu, is unable to form a government in this time Peres will either offer a chance to someone else or schedule new elections. The problem is that the number two and number three parties in size, Yesh Atid ("There is a future") and HaBeit HaYehudi (Jewish Home), have banded together and refused to enter any coalition that contains ultra-Orthodox or Haredi parties. This is because Yesh Atid ran on the platform of eliminating the religious exemption from national military service for Yeshiva (Jewish religious seminar) students, who also rely on financial aid extracted from the religious parties in coalition negotiations for their livelihood. Jewish Home leader Naftali Bennett is also fine with eliminating this exemption as religious Zionists do serve in the Israeli army. Yesh Atid leader Yair Lapid has emphasized the "equal burden" issue over other election issues.
Bennett and Lapid between them have 31 seats--the same number as Netanyahu has, so that as long as the two leaders trust the other not to strike a separate deal they can negotiate with Netanyahu as equals. In fact, because polls show that new elections would result in more seats for both Bennett and Lapid and fewer for Netanyahu, they have a superior hand to play. So far the only party to sign an agreement with Netanyahu has been Tzipi Livni of HaTnua (The Movement) who has been promised the justice ministry. But Lapid is demanding changes to the ban on bus service on the Israeli sabbath/shabat (Hebrew), which extends from Friday evening to Saturday evening. And he wants to make divorce and conversion easier in order to give more power to women and Russian immigrants.
Netanyahu prefers the ultra-Orthodox as coalition partners as they are compliant on other issues as long as he bribes them with financial aid and allows them to erode the status of secular Israelis. They are thus easier to live with than either the Likud's secular rivals on the Right or parties of the Center-Left. Dovish Americans have complained about the prospect of Bennet's Jewish Home sharing power with Likud Beitenu, but Likud Beitenu by itself insures that there will be no real peace deal with the Palestinians, who themselves are not yet ready to make peace. So from the viewpoint of the welfare of Israeli democracy, it is better that Yesh Atid and Jewish Home enter the government and solve the religious status problem.