Prime Minister-designate and Likud party leader Benjamin Netanyahu struck back on Wednesday at critics of his political agenda, a day after he reached a coalition deal with Labor party leader Ehud Barak.

"Peace is not the last goal. It is a common and enduring goal for all Israelis and Israeli governments, mine included. This means I will negotiate with the Palestinian Authority for peace," he told a Jerusalem conference.

The statement was directed primarily at US President Barack Obama, who on Tuesday both reaffirmed his determination to strive for the creation of a Palestinian state and warned that it would not be easy to work out a compromise with a Likud-led administration known for its opposition to the creation of a Palestinian state.

US President Barack Obama also called Benjamin Netanyahu to accept an inevitable two-state solution.

“It’s not easier than it was, but I think it's just as necessary,” Obama said in a news conference at the White House.

Labor delegates voted on Tuesday 680-507 in favour of a coalition deal which party leader Ehud Barak had reached earlier with Netanyahu.

But the Labor-Likud deal stopped short of detailing what the cabinet stance on the decade-old Israeli-Palestinian peace process would be. The two partners agreed to come up with a plan for a comprehensive peace in the Middle East and to obey all previously signed treaties. But the issue of a two-state solution was conspicuously absent from their final statement.

How much can Labor dampen Likud’s policies?

Under the coalition deal, Netanyahu “got the Defence Minister he wanted to handle the threat from Iran and the national unity government he needed to show the world that he was not a right-wing, peace-preventing fanatic”, the conservative Jerusalem Post commented on Wednesday.

Labour joins the ultra-orthodox Shas party and the nationalist Yisrael Beiteinu party, giving the Likud a 66-seat majority in the 120-seat Knesset.

Labor joins the ultra-orthodox Shas party and the nationalist Yisrael Beitenu party, giving Likud a 66-seat majority in the 120-seat Knesset.

As a result, Labor should get five ministerial portfolios, including social affairs, agriculture and trade and industry ministries, with outgoing Defence Minister Ehud Barak assured of keeping his role.

“Some in the party believe that their participation will do much to modify a right-wing government,” says Annette Young, FRANCE 24’s Jerusalem correspondent.

But Netanyahu was expected to hold further coalition talks on Wednesday with other potential partners from the national-religious camp – the parties Yahadut HaTorah (United Torah Judaism) and HaBayit HaYehudi (The Jewish Home).

Labor Party on the verge of explosion

Some within the Labor party find the status quo hard to sustain. Once Israel’s dominant party, Labor slumped to just 13 parliamentary seats after the Feb 10 election.

For Barak’s followers, “this is a move which will give the party a new lease on life,” says FRANCE 24’s Annette Young. But, she added, other party members hissed and booed at Barak during a special party congress on Tuesday.

Senior Labor official Ophir Pines-Paz accused Barak of throwing the party “into the garbage bin of history.”

This leaves outgoing Foreign Minister Tzipi Livni and her centrist Kadima party as the leader of the official opposition and the main supporter of a two-state solution. They had earlier rejected an alliance with Likud.

“Until recently, alleged agreement over peace and the territories justified Labor's existence in this maelstrom of factional politics,” noted Daniel Gutwein, in a Haaretz leader on Wednesday. “But now Barak has broken out from even this low common denominator, and a shared political view with Netanyahu appears to exceed even the opposing Labor factions' broad agreement on social and economic issues.”