Literally overnight, Prime Minister Benjamin Netanyahu has jolted his government toward the centre of Israeli politics, given himself the largest ruling coalition in the country’s history and emerged with a virtually free hand to deal with the two major issues facing the country — peace with the Palestinians and Iran’s nuclear program.

The announcement at 2:30 a.m. Tuesday of a new “national unity” coalition with the opposition Kadima party took Israel by surprise, infuriated Mr. Netanyahu’s opponents and freed the Prime Minister of his reliance on religious and hawkish right-wing elements in the Knesset.

It also put an end to talk of early elections in September and guarantees Mr. Netanyahu will remain in power until October 2013.

“Nothing less than an atomic bomb was dropped with the dramatic agreement that has inserted Kadima into the government and called off an early vote,” declared columnist Yosi Verter in the newspaper Haaretz.

The coalition deal “sends a very strong signal to Tehran, but also to Europe and the United States, that Israel is united and the leadership is capable of dealing with the threats that are there if and when it becomes necessary,” said Gerald Steinberg, political scientist at Bar-Ilan University near Tel Aviv.

The new coalition gives Mr. Netanyahu’s government 94 of the Knesset’s 120 members and makes Kadima party leader Shaul Mofaz, an Iranian-born former defence minister and chief of staff of the Israeli Defence Force, the country’s Deputy Prime Minister. It also pledges the new government to pursue four priorities: resolving whether ultra-orthodox Jews should serve in the military, producing a new budget, reforming Israel’s election process and advancing peace talks with the Palestinians.

On the second of a four-day state visit to Canada, Shimon Peres, Israel’s President and a former Labour Party prime minister, said, “A broad national unity government is good for the security, for the economy, for the people of Israel.”

Labour leader Shelly Yacimovich, who will become the new leader of the Opposition in the Knesset, dismissed the coalition as “a pact of cowards and the most contemptible and preposterous zigzag in Israel’s political history.”

Hours before the announcement of the unity government, Israelis were expecting to go to the polls on Sept. 4.

Mr. Mofaz, who took over leadership of the Kadima party only two weeks ago, had repeatedly gone on the record as saying he would never go into a coalition with Mr. Netanyahu.

“Not today. Not tomorrow and not after I lead Kadima,” he declared on his Facebook page during his party leadership campaign. “This is a bad, failed and insensitive government and Kadima under my leadership will replace it in the next elections.”

By threatening early elections, when public opinion polls suggested Kadima stood a chance of losing nearly half its 28 seats in the Knesset, Mr. Netanyahu held the whip hand in coalition negotiations.

Mr. Mofaz may now manage to get a small share of power and time to burnish his reputation with voters, but Mr. Netanyahu wins a series of tactical victories that free him to move toward the centre of Israeli politics, while strengthening his own position and possibly laying the groundwork to reabsorb elements of Kadima into the Likud party.

Kadima was created in November 2005 when then Prime Minister Ariel Sharon broke with right-wing elements in Likud over plans to unilaterally withdraw Israeli settlements from the Gaza Strip.

By reuniting the two parties in a unity government, Mr. Netanyahu may be in a position to reinvigorate peace talks with the Palestinians.

“The Prime Minister, with Kadima at his side, is also now potentially capable of taking a more centrist position on dealings with the Palestinians and over settlements,” David Horovitz, editor of the online newspaper Times of Israel wrote Tuesday. “It is by no means clear that he wants to do so. But he has room for manoeuvre now, if he wishes to use it. And the Americans and the rest of the international community will be well aware of the fact.”

Under the new coalition agreement, Mr. Mofaz will be responsible for reopening peace talks.

Mr. Netanyahu hasn’t shown a great deal of enthusiasm for a peace deal, but before Tuesday his government depended on the support of hard-right groups that were reluctant to negotiate.

Mr. Mofaz has said he is willing to make an interim agreement on borders and security with the Palestinian Authority and that he feels conflict with the Palestinians poses a greater threat to Israel than Iran.

In the past, Mr. Mofaz has been a vocal critic of the possibility of Israel attacking Iranian nuclear sites on its own. He has argued the United States should lead any intervention.

Now, he will have a voice and a vote in any decision on the issue.

“Judging by the decision to bring Kadima into the government, Netanyahu either is not planning on bringing a possible strike [on Iran] to a vote or he believes that he has a majority in the Cabinet without Mofaz,” Yaakov Katz, the military analyst with the Jerusalem Post newspaper said.

“Another possibility is that Netanyahu believes that once Mofaz joins the government and is re-exposed to the latest classified material on Iran, the Kadima leader will change his mind.”

National Post, with files from Reuters (© 2012 National Post, a division of Postmedia Network Inc. 05/09/12)