In a message on his Facebook page after the projections were announced, Netanyahu said he would begin "efforts to put together the widest government possible," indicating that centrist parties would be invited into his coalition.
The surprise result, according to the projections, was the surge to 19 seats of Yesh Atid, or There is a Future, a new centrist party. Its leader, Yair Lapid, a former television anchorman, based his campaign on a demand to end the exemption of tens of thousands of ultra-Orthodox Jews from compulsory military service so they can pursue religious studies with government stipends.
Lapid's campaign for equal service and easing the burden on Israel's struggling middle class resonated with many secular Israelis who pay high taxes and serve in the military. He has also called for a resumption of talks with the Palestinians.
"The message is that there is a new agenda," said Ofer Shelah, a Yesh Atid candidate, on Channel Two television.
"Lapid will determine how Netanyahu's government will look," said Amit Segal, Channel Two's political reporter, adding that Netanyahu "will now have to pay a heavy price."
The opposition Labor Party, which polls had predicted would be the second-largest faction, slid to third place, with 17 to 18 seats, according to the projections. Its leader, Shelly Yachimovich, has vowed not to join a government with Netanyahu.
A religious nationalist pro-settlement party, Jewish Home, which surged in the polls, was projected to win 12 seats, making it another potentially crucial element in a governing coalition.
"We've returned to the center of the political map," said its leader, Naftali Bennett, who extended the party's appeal to secular Israelis. Bennett opposes a Palestinian state and has called for annexation of most of the West Bank.
The parliamentary elections came after a lackluster campaign that failed to generate much passion on the streets.
Turnout was reported to be higher than in the last election, in 2009. Opinion polls before the voting indicated that Netanyahu's ticket and allied rightist and religious parties would emerge with a majority in parliament.
Netanyahu, 63, has been prime minister since March 2009. He previously held the position from June 1996 to July 1999.
At one polling station in Jerusalem, pocketbook issues rather than weighty questions of war and peace seemed to be at the forefront of voters' minds.
Miriam Engel, 29, a dance teacher, said she had debated up to the last minute among several centrist parties before casting her ballot.
"It's all shades of gray," she said after voting. "No one is talking about peace. Social issues are more prominent, but there's a feeling that nothing will change."
While Netanyahu focused his campaign on foreign affairs and security, his main challengers concentrated on economic concerns of ordinary Israelis, such as rising housing and food prices and more affordable health care and education. The issues were thrust to the top of the national agenda during a wave of social-justice protests that swept Israel in the summer of 2011.
Avinoam Rosenbaum, 27, a student, said he had voted for the opposition Labor Party, which campaigned for socio-economic reform and could emerge as the second-largest faction in parliament, according to final preelection polls. Echoing the general disillusionment with prospects for a peace deal with the Palestinians, Rosenbaum said the time had come to look inward and correct the economic disparities in Israeli society.
"Peace with whom?" he asked. "There's no partner. As long as things are frozen, we should take advantage of it and do good things internally. With all the talk about security, soon there won't be anything left to defend because we're disintegrating as a society."
Rosenbaum said he was most concerned about growing gaps between rich and poor and exemptions from compulsory military service granted to tens of thousands of ultra-Orthodox Jews. The demand for universal national service has become a battle cry of several candidates in the campaign and could figure prominently in negotiations to form the next governing coalition.
The protracted impasse in efforts to reach an agreement with the Palestinians made it a virtual nonissue in the campaign and helped boost the popularity of Jewish Home.
Reut Frenkel, 31, an events coordinator who voted for Jewish Home, characterized herself as a skeptic about peace prospects. She said she was attracted to the party because it brought in "new blood" and stands for "values I was brought up on."
Neta Shami, 35, a dance therapist, said she was planning to vote for a left-leaning party in the hopes of improving living conditions for Israel's struggling middle class.