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Netanyahu has until Wednesday night to reach a coalition deal, but he has been unable to convince ex-defence minister Avigdor Lieberman to abandon a key demand and allow a government to be formed.

Failing to do so would be a major setback for Netanyahu, and the stakes are especially high with the premier facing possible indictment for corruption in the months ahead.

There have been reports that Netanyahu is seeking legislation in the new parliament that would result in him receiving immunity from prosecution, and new elections would delay those efforts and may make it impossible.

Beyond that, he faces the risk of Israeli President Reuven Rivlin opting to give the task of forming a new government to someone other than him.

Late Tuesday, a parliamentary committee approved the wording of the bill to dissolve itself and hold new elections, the Knesset said in a statement, with the two further votes needed to finalise it scheduled to take place Wednesday afternoon.

The prime minister has sought to pile pressure on Lieberman, whose nationalist Yisrael Beitenu party's five seats are crucial to the coalition Netanyahu wants to form, but he has refused to back down.

'Principles and promises'

The dispute hinges on Lieberman's demand that legislation he supports aimed at having ultra-Orthodox Jews perform mandatory military service like other Jewish Israelis be approved without changes.

The issue is highly sensitive in Israel and the legislation is opposed by ultra-Orthodox parties, who control 16 seats in parliament and are set to become a key member of Netanyahu's coalition.

Read more: Lieberman to Netanyahu: Crush Gaza or no parliamentary coalition

"We are not looking to bring down Netanyahu and we are not looking for an alternative candidate, but we will not give up our principles and promises to the citizens of the state of Israel," Lieberman wrote on his Facebook page on Tuesday.

Netanyahu said in an address late Monday that Lieberman was being unreasonable and that there was "no reason to drag the country to unnecessary elections that will cost a fortune and paralyse us all for another half a year."

US President Donald Trump also tweeted in support of Netanyahu on Monday, while the White House announced Tuesday that his son-in-law Jared Kushner would visit Jerusalem later this week along with Morocco and Jordan.

Kushner's visit is likely to include talks on Trump's upcoming Israeli-Palestinian peace plan ahead of an economic conference related to it on June 25-26 in Bahrain.

His stop in Jerusalem may be overshadowed by Israel's domestic politics.

Long rivalry

While Lieberman has made his stand on the military conscription issue – one he has long championed – his dispute with Netanyahu also runs much deeper.

The two men have been both allies and rivals for much of their political careers, with Lieberman serving as head of the prime minister's office during part of Netanyahu's first term beginning in 1996.

Binyamin Netanyahu and Liberman at his election campaign headquarters on 23 Janurary 2013 in Tel Aviv [Getty]

He later broke away from the Likud to form his own party, which relies in large part on votes from Israelis who, like him, have roots in the former Soviet Union.

He has served in a range of ministerial positions both under Netanyahu and others.

His party's five seats won in April 9 elections are just enough to torment Netanyahu.

Likud and its right-wing and religious allies won a total of 65 seats in the 120-seat parliament in the polls. Without Lieberman, Netanyahu will struggle to form an effective coalition.

If a deal is not reached by midnight Wednesday, Rivlin could give Netanyahu another two weeks if he concludes the premier is the only person capable of forming a government.

Alternatively, Rivlin could ask another member of parliament to take on the task.

Netanyahu is widely seen as preferring new elections rather than leaving the choice up to Rivlin due to the possibility someone else could be selected.

He could also seek to form a minority government.

At a secretariat meeting Tuesday the Likud approved joining the four-seat centrist Kulanu headed by Finance Minister Moshe Kahlon to their list in case of early elections, in another indication of preparedness and willingness to face polls again.

"Our unity has brought us victory against the media and Left," Netanyahu told Likud members at the meeting. "We'll continue together, no matter what, and win together."

Dissolution of parliament

The main opposition Blue and White, a centrist alliance involving several former military chiefs, says a unity deal with Likud would be possible if Netanyahu would allow someone else from his party to form a government.

Blue and White's leaders say they cannot join a government led by Netanyahu due to the corruption allegations he faces, and the premier is seen as wanting partners willing to support legislation that could result in his immunity.

There has so far been no sign that Likud members would be willing to turn against Netanyahu.

Parliament has already taken initial steps toward provoking new elections and could vote to dissolve itself later Wednesday.

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