Israel’s political rivals have agreed to hold further talks about forming a future government, that is despite saying substantial differences remain after their first meeting.One of the central issues Benjamin Netanyahu and Tzipi Livni have to cover is how to pursue peace with the Palestinians. Livni said before their initial encounter, her Kadima party will not compromise its policy of two states living side by side, even if that cost it a place in the coalition. Right-wing Likud leader Netanyahu was given the task of forming a new government coalition by President Shimon Peres, despite Likud winning one seat fewer than Kadima. Observers say he is unlikely to opt for a deal with far, and ultra-right parties, which may put him on a collision course with the new Obama administration. He is instead expected to give Livni first refusal. But the two-state solution could prove a sticking point. Netanyahu is known to oppose giving up land to the Palestinians, preferring instead to support them economically.