Israeli Prime Minister Benjamin Netanyahu heads into an election in September with major challenges, ranging from curbing Iran’s nuclear ambitions to peace with the Palestinians, unresolved.
Following is a snapshot of the key issues that have dominated the agenda of his outgoing government:
Netanyahu has been keeping the world guessing over whether Israel will strike Iran to halt what it and the West believe is a drive to produce a nuclear weapon. Warnings by Israel leaders that deeply buried Iranian atomic facilities could soon be immune from Israeli bombs have fuelled international concern of an imminent Israeli attack. Netanyahu says his warnings about the threat a nuclear Iran would pose to the world have helped to ratchet up international sanctions against Iran. Some prominent Israelis, including former spy chiefs, have questioned the strategic value of a pre-emptive Israeli strike.
Netanyahu came into office in 2009 without ever having endorsed the idea of a Palestinian state. The shift came, under pressure from U.S. President Barack Obama, some two months into Netanyahu’s new administration when the right-wing leader said he would accept the establishment of a Palestinian state. But he set a series of terms -- some of which Palestinians had rejected in the past -- including demilitarization of any future state and Palestinian recognition of Israel as a Jewish state.
Urged by Washington to help coax Palestinians into talks, Netanyahu imposed a 10-month partial freeze on construction in Jewish settlements in the occupied West Bank. Palestinians returned to negotiations in 2010, but they swiftly collapsed after Netanyahu refused to extend the building moratorium.
The Arab Spring revolts have been watched warily in Israel. Netanyahu has said the upheavals, particularly in peace partner Egypt where the Muslim Brotherhood has been empowered amid strong anti-Israel sentiment, showed the need for Israel to move cautiously in any peacemaking with the Palestinians.
In 2011, Netanyahu agreed to an Egyptian-brokered deal with the Islamist Hamas movement that brought Israeli soldier Gilad Shalit home from more than five years of captivity in Gaza in exchange for more than 1,000 Palestinians held by Israel.
A decision last November by UNESCO to grant full membership to the Palestinians spurred Netanyahu to announce that Israel would speed up construction of some 2,000 housing units in settlements it said it intends to keep in any future peace deal.
In another step that raised Palestinian anger and international concern, Netanyahu's government last month retroactively declared legal three West Bank settlement outposts built without official authorization. Peace Now, an anti-settlement Israeli group, said the status change marked the first time since 1990 that a new settlement had been established, a view disputed by an Israeli official.
The world’s worst financial crisis since the Great Depression, began right before Netanyahu took power. He was able to pass a dual budget for 2009 and 2010 that maintained tight fiscal policies while the Bank of Israel slashed interest rates.
For the most part, the economy has weathered the crisis. After growth of 0.8 percent in 2009, the economy grew 4.8 percent in both 2010 and 2011. This was not enough to appease the public and Netanyahu faced mass protests in 2010 against the high cost of living. Netanyahu defused the crisis, appointing a committee to study the problems raised, but protest leaders say it has not resolved core concerns and warn of fresh rallies.
An incident late last year in which ultra-Orthodox Jews zealots spat at a schoolgirl they accused of dressing immodestly drew headlines and touched off an emotional national debate on a decades-old secular-religious divide in the Jewish state.
But it was the issue of the future of military call-up exemptions for ultra-Orthodox Jews that threatened to tear apart Netanyahu's coalition and opened the way for an election a year ahead of time. Religious parties in the current government are at loggerheads with an ultranationalist faction over the deferments. New conscription legislation is pending and likely to be finalized only after the election.