Benjamin Netanyahu's is on course for a record fifth term as Israel's prime minister.
Benny Gantz, his main rival in Tuesday's election, conceded defeat at a press conference in Tel Aviv on Wednesday.
"We respect the decision of the people," said centrist Gantz, who had been running neck-and-neck with Netanyahu with 97% of the votes counted.
Netanyahu is in a strong position to form a coalition government with the right-wing parties who are backing him.
Final results are expected on Friday though provisional ones showed 65 of the 120-seat Knesset would go to the right-wing bloc led by Netanyahu and 55 seats to the centre-left alliance.
Trump hails Netanyahu's victory
US President Donald Trump phoned Israeli Prime Minister Benjamin Netanyahu on Wednesday to congratulate him on his re-election.
Netanyahu said he thanked his ally for "tremendous support for Israel." Netanyahu tweeted that Trump had called him from Air Force One.
Earlier on Wednesday, Trump told reporters that Netanyahu's re-election after a national vote was a "good sign for peace".
During the election campaign, Netanyahu highlighted his close relationship with Trump, who delighted Israelis and angered Palestinians by recognising Jerusalem as Israel's capital in 2017 and by moving the US Embassy to the holy city in May 2018.
A dramatic night
Earlier, exit polls from Israeli media have the Prime Minister level at best, with some predicting that Gantz had the edge.
Two out of three exit polls saw Gantz taking more seats than Netanyahu's conservative Likud. A third exit poll predicted the two parties would be tied.
However, two of the polls predicted that right-wing parties would together take more than 60 of parliament's 120 seats, forming a bloc that Netanyahu could marshal to form the next coalition government -- a vital factor putting him on course to secure a record fifth term.
Both candidates took to Twitter to claim victory following the release of exit polls.
"We won! The Israeli public has had its say!" said Gantz's centrist Blue and White party.
"The rightist bloc led by Likud has won a clear victory," Netanyahu said. "I will begin forming a right-wing government with our natural partner this very night."
Polling stations closed at 9pm CET. But the winner might not be announced immediately as it will greatly depend on coalition building.
Bibi vs Benny
General Benny Gantz had several assets in this electoral race. First, he is ten years younger than his 69-year old rival.
His military reputation as a former paratrooper and chief of staff of the Israeli army is likely to reassure voters concerned with the country's security — an area where the right usually enjoys more trust.
Yet while Gantz has fought many military battles, he is a novice when it comes to politics, especially compared to political veteran Netanyahu.
Netanyahu, in power consecutively since 2009, is fighting for his political survival. He faces possible indictment in three corruption cases, in which the right-wing Likud party leader has denied any wrongdoing.
If he wins, Netanyahu will become the longest-serving Prime minister in Israel's 71-year history this summer.
Netanyahu's strategy for this election has been to syphon votes from ultranationalist rivals, pushing his policies and rhetoric further to the right. On Sunday, he promised to annex Jewish settlements in the occupied West Bank should he win the election.
The prime minister furthermore struck a deal with a far-right party loyal to the policies of the late anti-Arab rabbi, Meir Kahane. Faced with criticism over his alliance with an overtly racist entity, Netanyahu has defended the agreement as a way to improve his chances of forming a right-wing governing coalition led by his Likud Party.
While this strategy risks alienating moderate right-wing voters, Netanyahu can rely on the electoral system — no party has won a majority of seats since Israel's first election in 1949, so coalition-building will be essential.
Coalition building and kingmaking
Netanyahu will likely seek a coalition with ultra-nationalist and Jewish Orthodox parties.
Gantz, who heads the centrist Blue and White Party, will likely win the support of centre-left and left-wing parties, but polls predict he will fall short of a governing majority in parliament.
A far-right politician, Moshe Feiglin, has been drawing unexpectedly strong support, opinion polls show, with a libertarian platform advocating the legalisation of marijuana, free-market policies and annexation of the occupied West Bank.
In Israeli politics, a "unity government" can never be ruled out if the path to a right- or centre-left-led coalition proves difficult — even though Gantz has pledged not to serve with Netanyahu.
In the words of Haaretz, Israel's national newspaper, Netanyahu's long political career path is due to the fact that "Israelis are like smokers who would really like to quit, but who believe they can not function without their constant dose of nicotine."
According to political adviser Dahlia Scheindlin, Netanyahu's relationship with parties that sit further on the right could have strong repercussions for those who live on the West Bank:
"On the ground what we see are various forms of de-facto annexation- not formally, not in terms of declaring it but what you see is over the last couple of years Israeli settlements are expanding through construction of neighbourhoods and infrastructure, even without establishing brand new settlements… What the right-wing parties are now saying is let’s put a name to this, let’s formalize it. I do see increasing pressure to extend Israeli law more formally and make declarations about annexation. It will probably begin in pieces, not the entire West Bank, we might see bills that were hovering in the previous Knesset, Bills such an annexing one settlement such as Area C which is 60% of the West Bank – I wouldn’t be surprised if we see those coming around in the next term. "
"Netanyahu is a master of saying things that will help him win elections, even if they fall to the right of his actual governing policies. Sometimes his governing policies look a little more restrained... Even if Netanyahu himself would like to be more restrained than his campaign rhetoric, his coalition partners, may not allow it."