Contrasting styles: Berlusconi (left) and Prodi
Italian Prime Minister Silvio Berlusconi has agreed to step down, three weeks after elections produced a narrow victory for centre-left opposition leader Romano Prodi.
Mr Prodi won just enough seats to control the Senate (upper house), and secured a lower house majority.
Mr Berlusconi, who headed the longest-serving Italian government since World War II, initially refused to admit defeat, saying there had been irregularities. He still insists he won a larger share of the popular vote in the Senate.
Q: Is Italy now facing political turmoil?
Even though it is now certain that Mr Prodi will form the next government, it will be handicapped by having only a razor-thin majority.
Mr Prodi's centre-left Union bloc won a narrow victory in the 630-seat lower house, the Chamber of Deputies - but the margin of victory was less than one-tenth of 1%.
Italy returned to a system of full proportional representation for this election, which gives a working majority in the lower house to the winner, no matter how small the margin of victory.
The electoral change was pushed through by Mr Berlusconi's government in December 2005.
The situation in the 315-seat upper house, the Senate, is also complicated, with the six seats allocated for Italians living abroad proving crucial in giving Mr Prodi a wafer-thin majority.
Berlusconi has been a close ally of the US, especially over Iraq
It is the first time Italian expatriates have been able to elect their own representatives and their political allegiance is now under intense scrutiny.
If one bloc had ended up controlling the upper house and the rival bloc the lower house it would have meant a hung parliament and legislative paralysis. A government needs the support of both houses to function.
Both houses are elected by universal suffrage for a five-year term.
Seats are allocated according to a candidate's position on the relevant party lists, with those at the top of the list having a better chance of winning a seat than those at the bottom.
Q: When will Italy get a new government?
The formation of a new government will have to wait until after parliament elects a new president in May. President Carlo Azeglio Ciampi's seven-year term of office is about to expire.
Prodi's serious manner earned him the nickname "The Professor"
It is the president's job to select the prime minister.
So Mr Berlusconi will still remain caretaker prime minister until then.
Even before the election confusion critics warned that the new proportional system could return Italy to the pattern of short-lived governments which characterised politics for decades after World War II.
Q: Who are the main parties and players?
The centre-right House of Freedoms (Casa delle Liberta) is made up of a number of parties. Silvio Berlusconi's Forza Italia is the largest party, followed by the National Alliance (Alleanza Nazionale), led by Deputy Prime Minister Gianfranco Fini; the Northern League (Lega Nord) led by Umberto Bossi; and the Union of Christian Democrats and Centre Democrats (UDC), led by lower house Speaker Pier Ferdinando Casini. There are also a number of smaller parties in the coalition.
Relations between the various parties in the House of Freedoms have sometimes been fractious. A poor showing in regional elections last April prompted the UDC to pull its ministers out of the government in protest. There is little love lost between the National Alliance and the UDC - which both enjoy support in the poorer south - and the Northern League, which has consistently pushed for more powers to be devolved to Italy's richer northern regions.
The centre-left Union (L'Unione) coalition is led by Romano Prodi, who as well as being a former Italian prime minister was formerly president of the European Commission. Mr Prodi beat Mr Berlusconi in a general election in 1996, and the disparate group of left-wing parties that come under the Union's umbrella hope he can pull off the same trick this time.
Principal among those parties are the Left Democrats (Democratici di Sinistra), Italy's biggest centre-left party, led by Piero Fassino, with former prime minister Massimo D'Alema in the role of party chairman; the Daisy (La Margherita) party headed by former mayor of Rome Francesco Rutelli; and Communist Refoundation (Rifondazione Communista) led by Fausto Bertinotti. There are half-a-dozen other parties under the Union umbrella, including the Greens and the Social Democrats.
Mr Prodi is in the curious position of having no political party of his own, but a US-style "primary" held in October 2005 confirmed him as the number one choice, among those who voted, to lead the centre-left in the election.
Mr Berlusconi accuses him of being merely a "front-man" for a collection of quarrelsome left-wing groups. Some analysts suggest Mr Prodi remains vulnerable, as a leader with no substantial party of his own, to the same coalition party manoeuvring which forced him to resign after little more than two years in office following his 1996 election victory.
Q: What solutions are offered for Italy's economic woes?
The state of the economy and fears over job security were major issues with voters. When he came to power in 2001, Mr Berlusconi made much of his credentials as a successful businessman, promising reforms that would ensure the country's future prosperity.
Official figures published in March showed that the Italian economy did not grow at all in 2005. It has grown by a meagre 0.8% a year on average since Mr Berlusconi took office in June 2001. The new central bank governor, Mario Draghi, said recently that the economy had "run aground" since the 1990s.
Italian manufacturers are being hit hard by competition from East Asian exporters; the country's budget deficit remains in breach of EU rules; unemployment among the young remains stubbornly high; household debt is rising.
Mr Berlusconi's government blamed the international economic situation for Italy's sluggish performance, and promised to stimulate growth by cutting income taxes. It also promised to ease banking regulations, reduce fiscal pressure and boost the economy in the underdeveloped south.
Mr Prodi promised to boost employment by cutting labour costs, and to trim the budget deficit. The opposition also vowed to streamline Italy's large bureaucracy, and take measures to restore competitiveness.