Mr Netanyahu said his government would "strive for peace" with the Palestinians
Israel's parliament has sworn in Benjamin Netanyahu as prime minister and approved the new right-leaning coalition cabinet by 69 votes to 45.
Mr Netanyahu had earlier asked the country's parliament to trust in him to lead Israel through the economic and security challenges it faces.
He said he would negotiate with the Palestinians but made no reference to a two-state solution to the conflict.
The new cabinet is the largest in Israel's political history.
It combines the centre-right, centre-left and far-right parties, with hard-liner Avigdor Lieberman confirmed as foreign minister and Labour veteran Ehud Barak as minister of defence.
The cabinet is so big, the government's meeting table has had to be extended to accommodate all the members.
I say to the Palestinian leadership, if you truly want peace, peace can be obtained
The BBC's Paul Wood in Jerusalem says one of the first things the new government must do is reassure the international community that peace talks with the Palestinians will continue.
Speaking before the swearing in, Mr Netanyahu said his government would strive to reach an agreement with the Palestinians and would work towards peace on economic, security and political tracks.
"I am telling the leaders of the Palestinian Authority, if you really want peace, it is possible to reach peace," he said.
"We do not want to govern another people. We do not want to exercise our power over the Palestinians."
But the Palestinian Authority said the statement was "not encouraging", as it made no reference to the possibility of a future Palestinian state.
Speaking to BBC Arabic, PA President Mahmoud Abbas said the authority would deal with "any government chosen by the Israeli people".
But he said if that government did not accept the two-state solution, existing agreements and stop settlement activity, it would be "difficult" to deal with it politically.
Mr Netanyahu has said in the past that he sees no need for the Palestinians to have full separate statehood.
Analysts say the nuclear ambitions of Iran are likely to top the new cabinet's security agenda.
In an apparent reference to that effect, Mr Netanyahu said the biggest threat to Israel and the world came from "the possibility of a radical regime armed with nuclear weapons".
He further stressed the issue in comments given to a US magazine shortly before he was sworn in.
"You don't want a messianic apocalyptic cult controlling atomic bombs," he said
in reference to Iranian President Mahmoud Ahmadinejad's belief in the imminent return of a Shia Islamic messianic figure, the Mehdi.
Paul Wood reports from Jerusalem
The difficulties of coalition building in Israel mean this is a big, big government, with some 30 ministers.
The last time Mr Netanyahu was PM, he failed to complete his term - most Israeli governments don't and this one, an unwieldy and unhappy amalgam of opposites, stands less chance of success than most.
First order of business will be to deal with the economic crisis. That's hit Israel just like everywhere else, although, additionally, there may be signs that the Shekel is seriously over-valued.
This new administration doesn't believe that a negotiated Middle East peace settlement is possible with the Palestinians. They will try instead to contain the conflict while pushing forward Mr Netanyahu's plan for an "economic peace", which involves granting the Palestinians something less than a state.
The main issue as far as Mr Netanyahu is concerned is Iran's supposed nuclear ambitions. Whether or not to bomb Iran will be the new prime minister's most momentous decision - and one he may make quite soon.
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