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Israel's Prime Minister Benjamin Netanyahu (R) and Isaac Herzog, co-leader of the Zionist Union party, are pictured together as campaign billboards rotate in Tel Aviv, March 9, 2015.

BAZ RATNER/REUTERS

Israel's right-wing coalition government looks set to move even further right after Israeli Prime Minister Benjamin Netanyahu this week spurned a possible merger with Opposition Leader Isaac Herzog and his centrist Labour Party. Instead, Mr. Netanyahu turned to the small ultranationalist Yisrael Beitenu party, offering its leader, Avigdor Lieberman, the powerful post of defence minister if he will bring his party into the government to enhance its majority.

Mr. Lieberman accepted the offer and talks between each side's negotiating teams began late Wednesday and continued Thursday into the night as the parties fleshed out terms of a merger.

Among other things, Mr. Lieberman has demanded the government pass legislation to impose the death penalty on terrorists who attack Israelis.

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The prospect of the mercurial Mr. Lieberman as defence minister shocked many Israelis as well as leaders in neighbouring countries.

Benny Begin, the widely respected member of Knesset from Mr. Netanyahu's own Likud party said "the idea to appoint Lieberman as defence minister is bizarre." Speaking on Israel's Channel 2 on Wednesday evening, he said that "this move displays a lack of responsibility toward the defence establishment and toward the citizens of Israel."

Mr. Lieberman, who never served in the military, has frequently criticized its leaders for being too soft on Palestinian militants. Most recently, he defended a soldier who shot to death a Palestinian assailant as he lay wounded and disarmed on the ground. Military commanders and current Defence Minister Moshe Yaalon condemned the soldier's action for violating the forces' code of ethics and insisted he be charged with homicide.

Naftali Bennett, whose arch-settler Jewish Home party is part of the governing coalition, welcomed the prospective new partner.

"Lieberman entering the government is great," Jewish Home sources told the Haaretz newspaper. "This would be a deep right-wing government, the most right-wing ever in Israel."

On the other hand, an Egyptian official, who spoke on condition of anonymity, told Reuters: "We're shocked, we're really shocked" by the prospective appointment.

Mr. Lieberman will forever be remembered in Egypt for threatening to bomb Egypt's mighty Aswan Dam and for saying of former president Hosni Mubarak that if he didn't want to visit Jerusalem, he could "go to hell."

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The news about Mr. Lieberman came a day after Egypt's President Abdel-Fattah el-Sissi promised Cairo's support if Israel's political leaders commit themselves to ending the Israeli-Palestinian conflict.

It was the once-in-a-lifetime opportunity to make a deal with the Palestinians for an independent state and to get the support of the larger Arab world that had motivated Mr. Herzog to discuss joining the government, even though many in his party criticized him for negotiating with Mr. Netanyahu.

In his unprecedented remarks, Mr. el-Sissi said: "If a Palestinian state were to be established, I can say with assurances to all of us that it will provide security for both sides, peace for both sides, stability for both sides."

Mr. Herzog saw the significance of these remarks: "We have a historic opportunity for a rare regional development that could change the face of the Middle East," he said.

Egypt's foreign policy has fallen very much in line with that of Saudi Arabia, which has come to the rescue of the cash-strapped Egyptians and guaranteed the financial solvency of the el-Sissi regime for the next five years.

In April, Egypt announced the transfer to Saudi Arabia of two strategically important islands in the Gulf of Aqaba. In doing so, Riyadh endorsed the Egypt-Israel peace treaty and agreed to allow complete freedom of passage to all ships going past these islands to and from the Israeli port of Eilat.

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Mr. Yaalon told reporters that Israel had even received a written agreement signed by all sides that confirmed Israel's continued freedom of navigation in the Straits of Tiran. He emphasized that security co-operation with Egypt – and by extension with Saudi Arabia – had reached an all-time high.

This is the opportunity for which Mr. Herzog longed.

Instead, Mr. Yaalon is to be relieved of his duties as defence minister and replaced by Mr. Lieberman; talks with the Palestinian leadership are only a remote possibility; Mr. Herzog is struggling to stay afloat as Labour Party leader; and the Egyptians are left scratching their heads.

"If Netanyahu wants to bring Lieberman into the government, then let him do it," Mr. Herzog said.

"The citizens of the State of Israel will have to deal with a government whose policy will be verging on insanity," he warned. "This is what I tried to stop."

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