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UPDATE 4-Israel faces new vote as Netanyahu fails to form government

Jeffrey Heller and Dan Williams

* Knesset votes to dissolve itself

* Paves way for Sept. 17 election, second this year

* Netanyahu to run again, vows victory (Adds Trump comments)

JERUSALEM, May 30 (Reuters) - Israeli lawmakers voted to dissolve parliament on Thursday, paving the way for a new election after veteran Prime Minister Benjamin Netanyahu failed to form a coalition government before a midnight deadline.

Netanyahu preferred a new ballot, set for Sept. 17, to the alternative, under which President Reuven Rivlin could have asked another politician to try and form a ruling coalition.

But the need to go the polls again so soon after a closely contested April 9 election in which Netanyahu had claimed victory, showed a new weakness in a leader who has been in power for the past decade and who has become the face of Israel for many.

Potential indictments in three corruption cases have only deepened questions about his political survival.

"We will win," Netanyahu, 69, head of the right-wing Likud party, vowed after parliament voted when the deadline expired for him to assemble his fifth government.

However, he was looking over his shoulder at the Likud benches during the vote in what some commentators interpreted as concern about any last-minute revolt. Not a single Likud lawmaker wavered in voting for an election.

With coalition-building potentially stretching into November once that election is over, the uncertainty seems likely to delay further U.S. President Donald Trump's forthcoming plan to resolve the Israeli-Palestinian conflict.

At the White House, Trump voiced regret at the political turmoil in Israel and praised Netanyahu, with whom he has been in lockstep in tough policy towards the Palestinians and Iran.

"It's too bad what happened in Israel. It looked like a total win for Netanyahu - who's a great guy. He's a great guy. And now they're back in the debate stage and they're back in the election stage," Trump told reporters.

The crisis arose - officially, at least - from a feud over military conscription between Netanyahu's presumed allies: ex-defence minister and far-right secularist Avigdor Lieberman, and ultra-Orthodox Jewish parties.

Those parties want young religious scholars exempted en masse from mandatory national service. But Lieberman and many other Israelis say they should share the burden.

Faced with the prospect of having to step aside at the end of a 42-day post-election period allowed for putting together a government, Netanyahu instead drummed up support to dissolve the Knesset.

He cast Lieberman, a settler in the occupied West Bank, as a leftist for effectively blocking the creation of a right-wing administration and said his erstwhile ally had been out to topple him.

In a dig that may foreshadow election campaign attack lines, Lieberman retorted that he lives in a settlement, whereas Netanyahu has a home in a Mediterranean beachfront suburb.

"The man from Caesarea is accusing the man from Nokdim of being left-wing?" said Lieberman, head of the Yisrael Beitenu party.

'DEAL OF THE NEXT CENTURY?'

In Jerusalem, the White House team behind the Trump peace proposal, including the president's son-in-law Jared Kushner, held talks with Netanyahu but made no public comment about any timeframe for release of the plan.

"Even though we had a little event last night," Netanyahu said, referring to the vote in parliament, "that's not going to stop us - we're going to keep working together."

The group is in the Middle East to drum up support for what Kushner styles as an economic workshop in Bahrain next month to encourage investment in the occupied West Bank and Gaza.

Even before it has been announced, Palestinians have spurned the plan - described by Trump as "the deal of the century" - as a blow to their statehood hopes.

"Now it is the deal of the next century," Palestinian chief negotiator Saeb Erekat told Israel Radio.

PROSECUTION

As the coalition deadline neared, public attention had been focused on pledges by Netanyahu loyalists to push for a vote in the Knesset granting him immunity from criminal prosecution as a member of parliament and to pass a law ensuring such protection cannot be stripped by the Supreme Court.

Many opponents and political commentators saw Netanyahu's push for a new election, before the poll in April and now, as being largely motivated by his legal woes.

"It's astounding how easily one man is taking the entire State of Israel hostage for his own personal gains. We are heading to another election just so that he can escape prosecution," Gabi Ashkenazi, a member of the centrist Blue and White party and former armed forces head, told Army Radio.

Dubbed "crime minister" by foes, Netanyahu denies any wrongdoing in the graft investigations he faces, and has said he aims only to ensure the Supreme Court does not overstep in judging decisions by popularly elected lawmakers.

Israel's attorney general has said he intends to charge Netanyahu with bribery and fraud, pending a pre-trial hearing, which is scheduled for October.

First elected in the late 1990s, Netanyahu will overtake Israel's founding father, David Ben-Gurion, in July as Israel's longest-serving premier.

The last election, in which Netanyahu showcased his warm relations with Trump and frequent contacts with Russian President Vladimir Putin, ended with him neck-and-neck with Benny Gantz, a politically untested ex-armed forces chief and head of Blue and White.

But Netanyahu was given the nod to form a government after ultranationalist, right-wing and religious party leaders voiced their support.

(Additional reporting by Stephen Farrell in Jerusalem and Steve Holland in Washington Editing by Jon Boyle, Andrew Cawthorne and Frances Kerry)