Israelis are voting in a general election that is likely to change the political map of the country.
Opinion polls predict a win for the centrist party formed by Ariel Sharon, who now lies in a coma, but a record low turnout could affect its prospects.
Acting Prime Minister Ehud Olmert has vowed to settle Israel's final borders if the Kadima party wins the election.
The vote has been described as a referendum on the future of the West Bank, says a BBC correspondent.
But politicians for the 31 parties taking part have been battling public apathy, with some commentators predicting a record low turnout.
With two hours' polling left, just 57% of registered voters had voted - the lowest turnout in Israeli history at that stage of voting.
As he voted in Jerusalem, within minutes of the polls opening, acting Prime Minister Mr Olmert urged Israelis: "Go and vote... That's the most important thing. The whole of the Israeli nation. Go and vote."
Israeli President Moshe Katsav said the election was "among the most important in the history of our state".
Since the creation of the Israeli state, the country has been governed either by the Labour or Likud parties, so a Kadima victory would be historic.
Security is intense, with Palestinians banned from Israel during the vote, amid fears of possible militant attacks. Israel has deployed about 22,000 police and volunteers to enforce security.
Hours into the polls, two Israelis, Bedouin Arab shepherds, were killed in the south of the country in a suspected Palestinian rocket attack.
Election day is a national holiday in Israel. The 8,276 polling booths, many of which are set up in schools, opened at 0700 (0500 GMT).
Polls will close at 2200 (2000 GMT), with media exit polls expected shortly afterwards.
Two opinion polls in the Yedioth Ahronoth and Maariv newspapers on Monday both suggested Kadima would win 34 of the 120 Knesset seats.
This is slightly fewer than in earlier polls, which indicated Kadima would achieve the 40-plus seats Mr Olmert said he needs for a stable government.
If the latest polls are right, analysts say it could be difficult for Mr Olmert to establish a stable coalition and push through his policy of creating permanent borders for Israel.
He plans to do this by dismantling some isolated Jewish settlements but also annexing parts of Palestinian territory.
The Palestinians oppose the plan, saying it will leave them unable to create a viable state.
The Israeli election comes as the Palestinian parliament is poised to approve a government led by Islamic militant group Hamas.
Hamas, which won elections in January, has resisted demands to renounce violence and recognise Israel.
Kadima was founded by Mr Sharon last year but he has been in a coma since suffering a stroke in January.
The two newspaper polls also suggest the left-of-centre Labour party will win about 19 seats, with 13 or 14 for the right-wing Likud party.
Likud, led by former premier Benjamin Netanyahu, has been campaigning on a more hard-line programme, while Labour has focused on social welfare.
Commentators say Labour under Amir Peretz still looks like Mr Olmert's most probable coalition partner.
But they say there could still be big changes, with a high number of swing voters and the possibility of a low turnout affecting the outcome.
The right-wing nationalist Yisrael Beitenu party under Avigdor Lieberman is said to be vying with Likud for third place.