(Updates election results) By Adam Entous and Arshad Mohammed JERUSALEM/WASHINGTON, Feb 11 (Reuters) - No matter who leads Israel's next government, internal divisions are likely to tie its hands in any peacemaking with the Palestinians and leave U.S. President Barack Obama's Middle East policy in limbo. Centrist Tzipi Livni, who as foreign minister spearheaded peace talks with the Palestinians, led in Tuesday's election, but her Kadima party's razor-thin margin over rightist Benjamin Netanyahu left it too close to call who would be prime minister. Western diplomats and analysts said the growing strength of right-wing parties in Israel made it almost impossible for the new government to make the compromises needed for peace, despite Obama's commitment to bringing the two sides together after Israel's war in the Hamas-ruled Gaza Strip last month. The obstacles facing the peace process on the Palestinian side are just as daunting, and possibly harder to handle, since the Hamas Islamists won a 2006 parliamentary election and seized control of the Gaza Strip in 2007 after routing forces loyal to Western-backed President Mahmoud Abbas. Like those Israeli leaders who want a two-state solution, Abbas, whose secular Fatah faction now runs only the Israeli-occupied West Bank, has seen his public support eroding. His fight with Hamas for legitimacy among Palestinians, his failure to deliver a promised statehood deal in talks with outgoing Israeli Prime Minister Ehud Olmert, and his response to the Gaza war have all sapped his strength. "In a way, the Obama administration is going to inherit the worst of both worlds," said Aaron David Miller, a former U.S. peace mediator and the author of "The Much Too Promised Land: America's Elusive Search for Arab-Israeli Peace". "They have already inherited a dysfunctional Palestinian house, made worse by Gaza, and now what they are inheriting is a dysfunctional Israeli house where the prime minister is not going to be able to make the kinds of bold, tough choices required to move forward," he added. PALESTINIANS PESSIMISTIC Top Palestinian negotiator Saeb Erekat underscored the sense of hopelessness. Even if Livni, his negotiating partner, comes out on top, Erekat said, "the next Israeli government will be unable to deliver the requirements of peace" -- a crackdown on Jewish settlement building and the easing of Israeli restrictions that have stunted the Palestinian economy. The electoral arithmetic speaks for itself. Partial results showed Livni's centrist Kadima and left-wing parties would hold only 56 seats in the 120-seat parliament, while a right-wing bloc would control 64, enough to govern. That means emboldened far-right parties like Yisrael Beiteinu will have the power to bring down fragile coalitions. What Obama can do, Western officials and analysts say, is work to prevent further Israeli-Palestinian violence, maintain Israeli cooperation with Abbas's government and encourage the Palestinians to settle their differences while looking for opportunities to push forward with the peace process. It won't be easy. While Livni has vowed to restart the political track following Israel's 22-day offensive in Gaza, there are doubts about her ability to hold serious discussions on territorial concessions, which Abbas needs to survive. If she joins forces with rightists, simply talking about ceding holy land could cut short her government's life. If Netanyahu forms a government, it could be even harder. During the campaign, Netanyahu ruled out freezing Jewish settlement growth in the occupied West Bank, a long-standing Western demand that Obama is expected to push Israel to act on. Netanyahu has also vowed never to cede Arab East Jerusalem to the Palestinians or the Golan Heights to Syria, undermining the foundations of a two-state solution and a regional Arab peace initiative that Obama appears to have embraced. Analysts say Obama's ability to move either Livni or Netanyahu will depend in large part on their coalitions. Livni could turn to both Netanyahu and left-leaning Labour, led by Defence Minister Ehud Barak, to form a unity government. Netanyahu has more options if he gets the nod. On the right is Avigdor Lieberman, whose surging Yisrael Beiteinu party has pledged to get tougher with Palestinians, including Israeli Arab citizens, and to keep Jewish settlements. Such a partnership might look like the worst-case scenario for Obama, analysts said, although previous right-wing coalitions have led to breakthroughs, most notably in making peace with Egypt in 1979. There are signs, however, that Netanyahu may prefer to forge a broader coalition that includes Kadima, providing continuity that could help relations with Obama's foreign policy team, led by Hillary Clinton, the new U.S. secretary of state. Still, what can be achieved given the political divisions on both sides looks minimal. While the United States could try to mend the West Bank-Gaza split by supporting creation of a Palestinian unity government, followed by new elections, "how does the U.S. plan to make sure Abbas wins?" asked a senior Western diplomat. The diplomat lamented that the only real solution may be off-limits now. "You cannot change intra-Palestinian politics without a serious peace process that reinforces moderates. If you cannot satisfy the national aspiration of Palestinians soon, I think Hamas will be reinforced," the diplomat said.
Members of Neturei Karta, a fringe ultra-Orthodox movement within the anti-Zionist bloc, take part in a protest against Israel's parliamentary election in Jerusalem's Mea Shearim neighbourhood February 10, 2009. Israelis voted ...
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