Israeli voters head to the polls in one of the 'most unsavory' campaigns in country's history

Key Points
  • Roughly 6.3 million Israeli voters are expected to cast their ballots today in an election that will have major implications for both Israelis and Palestinians.
  • Incumbent Prime Minister Benjamin Netanyahu faces his toughest challenge yet after months of being dogged by corruption and bribery allegations.
  • Top opposition candidate Benny Gantz, a former army general, leads a center-left coalition but is currently trailing in close polls.
Election campaign one of the most unsavory in Israeli history: academic

Roughly 6.3 million Israelis are expected to cast their ballots today in an election that will have serious implications for the legacy of incumbent Prime Minister Benjamin Netanyahu, for Palestinians, and for Israel's relationship with the rest of the Middle East.

Netanyahu faces his toughest challenge yet after months of being dogged by corruption and bribery allegations. His top competitor Benny Gantz, a former army general, who leads a center-left coalition. If Netanyahu wins — and polls are currently giving him a lead, though it remains close — the 69-year-old will become the longest-serving prime minister in the country's history.

The 2019 election campaign was marked by scandals and mudslinging; Netanyahu's Likud party, in one example, edited a TV interview of Gantz to frame him as mentally unstable, while Gantz has painted Netanyahu as a corrupt traitor who sold his country out for money. Likud also leaked that Iranian hackers had compromised Gantz's cell phone and found incriminating information including that of an alleged mistress.

"No doubt this campaign was one of the most unsavory in Israeli history," Yossi Mekelberg, professor of international relations at Regent's University London told CNBC's Squawk Box Europe on Tuesday. "The language, the attitude, the smearing campaign against rivals, this was not very pleasant to see."

The government also claimed that Gantz was Iran's favorite candidate, while calling him a left-winger who wouldn't keep the country safe. Netanyahu's critics have accused the prime minister of allying with far-right and borderline fascist players to win votes.

New parties and old faces

Gantz allied with center-left former finance minister Yair Lapid to create the new and avowedly centrist party Kahol Lavan, known in English as the Blue and White Party. Gantz has called for pursuing peace with the Palestinians, while maintaining Israel's security priorities. His platforms include granting territorial concessions to the Palestinians but he's avoided the issue of Palestinian statehood; he also wants to establish term limits for the prime minister and invest in education.

Netanyahu has been prime minister of Israel four times, beginning in the 1990s as the country's youngest elected head of government and is now the only prime minister to have been elected to three consecutive terms.

His tenure has seen Israel take an increasingly hard line on the Occupied Palestinian territories, expanding Israeli settlements into the West Bank that have been designated by the UN as illegal under international law. He prides himself on his nickname of "Mr. Security" and also serves as Minister of Defense.

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Thanks to enthusiastic support from the Trump administration, Netanyahu has been emboldened to pursue right-wing policies — he now says that if he wins, he will annex the West Bank, home to around 2.5 million Palestinians.

While Netanyahu's recent pledge to "extend sovereignty" over the West Bank settlements triggered harsh condemnation from overseas, "they will likely only have a marginal effect on the political contest within," according to a Eurasia Group note by Middle East analyst Henry Rome, who believes most Israelis will just write it off as campaign rhetoric.

"At this point, Netanyahu's comments more likely represent a flimsy campaign promise than a definitive new Israeli strategy," Rome wrote Tuesday.

Gantz, for his part, says he opposes unilateral annexation, and has called Netanyahu's promises "meaningless."

The end of the two-state solution?

"This government's composition would not be all that different from Netanyahu's current coalition, but it may pursue a very dangerous path by opting to start annexing parts of the West Bank," Ilan Goldenberg, Middle East Security Director at the Center for a New American Security, wrote in an op-ed for Slate Magazine.

"Such a decision would lead to irreversible steps that make it impossible to form a contiguous and viable future Palestinian state and could lead to the dissolution of the Palestinian Authority… In short, this outcome could mark the end of the possibility of a two-state solution."

The U.S. under Trump, in a stark rejection of policy norms, has recognized Israel's annexation of the Golan Heights and the status of Jerusalem as Israel's capital, issues that had been previously regarded by the international community as subject to negotiation between the Israelis and Palestinians.

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Security and economy remain top issues for many Israeli voters. Despite a booming economy driven by an internationally acclaimed start-up culture, inequality remains high and many young Israelis want to see progress on housing and living costs.

"Security is the basic threshold that everybody thinks about when they make their decision, and if they're comfortable with most candidates on security then they'll vote on other issues," Michael Granoff, founder of Tel Aviv-based venture fund Maniv Mobility, told CNBC's Hadley Gamble on Tuesday.

"The tech sector has really been the engine of Israel's economy over the last decade or more, and I think any government that comes in is going to want to continue to see that growth ... The polls are showing a close race but any leadership is going to want to preserve the economic gains that we've seen over the last decade."

The ability to form a governing coalition is crucial

Netanyahu's right-wing Likud party is not likely to win a plurality of seats, analysts say, but if his wider right-religious bloc of parties win enough seats in the Israeli parliament (the Knesset) to have a shot at forming a government — that's 61 seats or more — then he'll likely keep the premiership.

"Aside from his Likud party, the prime minister must secure the support of nearly all small right-wing parties to build a governing coalition," wrote Rome. This means that he's been catering to the hard right rather than trying to attract centrist or undecided voters.

Gantz, whose center-left coalition includes the Labor party and Arab-majority parties, would need to ally with them and win over some of the smaller parties in Netanyahu's coalition by convincing them of his potential success. "If Gantz can credibly claim to prevent Netanyahu from forming a government, he then can try to peel away one or two parties and form a governing coalition," Rome said.

Many observers say that Gantz currently does not have the force required to create a governing coalition.

Within a week of the election, Israel's president Reuven Rivlin must choose the member out of the parties that won seats he thinks has the best ability to form a government, and then that person has up to 42 days to form a coalition. If this fails, the president chooses different party members to attempt government formation; if that too fails, the country holds early elections.

Polls will close Tuesday at 10 p.m. Israeli time.