Barak and Netanyahu have never been likely coalition partners
By Paul Wood
BBC Middle East correspondent, Jerusalem
US President Barack Obama's observation that achieving Middle East peace had not got any easier with Israel's change of government was exactly the kind of thing Benjamin Netanyahu must have been afraid of.
It explains why Mr Netanyahu, Israel's prime minister-designate, needed to bring Labour into his coalition.
The result is a curious ideological pantomime horse of a government - but one that Mr Netanyahu can sell abroad, especially in Washington.
The relationship with America is the most important that Israel has. The US provides billions of dollars of subsidies, sophisticated military hardware and, ultimately, a security guarantee should Israel ever find itself in a war it cannot win.
The critics say they have sunk principle in the cause of personal ambition
But Israeli officials have been very worried that they face an administration in Washington that, if it is not hostile, is certainly the most sceptical in years.
And this was even before the prospect arose of Israeli right-winger Avigdor Leiberman serving as foreign minister.
That was the specific issue Mr Obama was asked about when he delivered what, in diplomatic terms, was a brutal slap-down.
Mr Netanyahu, all too well aware of the danger, has been stressing that the government he is forming will be a "partner for peace" with the Palestinians.
He told a conference in Jerusalem on Wednesday that his stated focus on building up the Palestinian economy would not be a substitute for peace talks.
"Peace... it's a common and enduring goal for all Israelis and all Israeli governments - mine included," Mr Netanyahu said.
Side by side?
So where does this leave the two-state solution and the creation of a Palestinian state?
Mr Netanyahu does not want one. He thinks that the West Bank could become a launch pad for rockets into Israel if the Palestinians were granted statehood.
The Palestinians demand an end to Israeli settlement-building
Yet the Labour leader, Ehud Barak, is part of an outgoing government which was negotiating a peace based on Israel living side by side with a sovereign Palestine.
How can the two men now serve in the same government?
The critics say they have sunk principle in the cause of personal ambition. "Netanyahu and Barak broke their campaign promises," was the simple comment in Israeli newspaper Yediot Ahronot.
Certainly the deal has left many in Labour unhappy. At the age of 67, Ehud Barak may be facing his last chance to remain in office. But others could go to the opposition benches.
The prospect now is of a split which could destroy Labour, a historic force in Israel's politics and history.
Israeli commentator Ben Caspit accused Labour of "celebrating its own funeral".
"The Labour Party signed its own death certificate yesterday in a festive ceremony at the Exhibition Grounds in Tel Aviv [where Tuesday's voting took place]," he wrote on Wednesday.
Status quo danger
Labour now finds itself in an extraordinarily broad coalition with the right-wing bloc of Likud and Yisrael Beiteinu.
It is no surprise, then, that the pact thrashed between Mr Netanyahu and Mr Barak on the peace process is vague to say the least.
Mr Netanyahu agreed to maintain peace negotiations and to respect all of Israel's international agreements.
Some of those agreements do envisage Palestinian statehood - but the electoral arrangement between Likud and Labour falls far short of explicitly recognising the two-state solution.
So President Obama is keeping up the pressure. "It is critical for us to advance a two-state solution where Israelis and Palestinians can live side by side in their own states with peace and security," he said. "The status quo is unsustainable."
The reality of maintaining a governing majority in the Knesset may mean that the status quo is exactly what Israelis and Palestinians will have to live with.