Prime Minister Benjamin Netanyahu will within days stitch together a coalition that will draw in the centrist Yesh Atid and nationalist Jewish Home parties but exclude ultra-Orthodox groups, media reported on Monday.
Netanyahu was on Saturday given two more weeks to form a new government, four weeks after initially being tasked to do so by President Shimon Peres.
If he fails to meet the deadline, another member of parliament will be given the responsibility.
Israeli daily Haaretz, quoting political sources, said that Netanyahu had decided to abandon his efforts to form a coalition with the ultra-orthodox parties -- his traditional allies -- after failing to break an alliance between Yesh Atid led by Yair Lapid and the Jewish Home party of Naftali Bennett.
Netanyahu, whose Likud-Beitenu list emerged as the largest party in a January 22 general election with 31 of the Knesset's 120 seats, had hoped to include the two ultra-Orthodox parties, Shas and United Torah Judaism (UTJ), in his government.
But Yesh Atid, which came second with 19 seats, and far-right Jewish Home which came fourth with 12, opposed concessions Netanyahu was willing to offer the ultra-Orthodox parties on the military draft, and agreed that neither would enter a coalition without the other.
The media reports said that Netanyahu on Sunday met with leaders of Shas, which won 11 seats, and told them that he would probably be unable to accommodate ultra-Orthodox parties in his coalition, despite wanting to do so.
Shas and UTJ are relatively convenient coalition partners, with neither likely to oppose potential peace initiatives nor pose a threat to Netanyahu as premier.
Netanyahu and Bennett met Sunday for more than two hours, a party official said.
"It was a positive and concrete meeting," Uri Ariel, who is leading the negotiations on behalf of Jewish Home, told army radio.
"They decided to continue to work rapidly on the conditions for the entry (of Jewish Home) into the coalition."
Deputy Prime Minister Silvan Shalom said on army radio: "I think we will have a government by the beginning or middle of next week."
"I still have some hope ... that we can broaden the government (by including the ultra-Orthodox parties). We continue to make efforts in this direction."
A close aide of Netanyahu and his deputy in Likud, Tzahi Hanegbi, said on army radio that Israel was "heading towards a less stable government ...than one including the ultra-Orthodox parties."
After Sunday's meeting between Netanyahu and Bennett, officials from Jewish Home, quoted by Haaretz, said that Bennett would remain faithful to his alliance with Yesh Atid and that both the parties had laid out their conditions for joining Netanyahu.
If Netanyahu succeeds in forming a coalition with the two parties, the alliance is also seen getting the two seats of Kadima and six of centrist HaTnuah, taking the coalition to a majority of 70 seats in the Knesset.