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85% of vote counted in fifth election in four years
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Netanyahu and allies on pace for majority in parliament
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Coalition would be one of most right-wing in Israel's history
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Alliance with religious, far-right parties alarms Palestinians
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Centrist incumbent Lapid cancels attendance at COP27
(Adds updated tally, West Bank violence)
By Maayan Lubell
JERUSALEM, Nov 2 (Reuters) - Former Prime Minister Benjamin Netanyahu was set to return to power in one of the most right-wing coalitions in Israel's history, causing jitters among Palestinians and Arab neighbours who fear it could ratchet up tensions across the Middle East.
With roughly 85% of votes counted, Netanyahu's conservative Likud and its likely religious and far-right allies were on pace to control a majority in parliament after Israel's fifth election in less than four years.
"We are on the brink of a very big victory," a smiling Netanyahu told cheering supporters at his Likud party election headquarters, his voice hoarse from weeks of campaigning.
Netanyahu's prospective alliance with ultranationalist firebrand Itamar Ben-Gvir has alarmed Palestinians and members of Israel's minority Arabs. Asked whether Washington shared such concerns, a White House National Security Council spokesperson declined to comment.
"We look forward to continuing to work with the Israeli government on our shared interests and values,” the spokesperson added.
As prime minister, Netanyahu government will likely press forward with settlement activity on occupied land where Palestinians, with international support, seek statehood. But his hard line on Iran means Israel's recently struck Gulf Arab alliances should hold firm.
"No doubt the result of such a coalition will increase the hostile attitude towards the Palestinian people and make occupation measures more extreme," Bassam Salhe, a member of the Executive Committee of the Palestine Liberation Organization, told Reuters.
In fresh violence, a Palestinian motorist wounded an Israeli soldier in a West Bank ramming attack before being shot dead.
Netanyahu vowed to form a "stable, national government" that would act responsibly, avoid "unnecessary adventures" and "expand the circle of peace".
POLITICAL PATHS
Though the landscape could shift as the remaining ballot count trickles in, Israeli media predicted Netanyahu, who is on trial over corruption charges he denies, would lead a bloc of four parties taking 65 of the Knesset's 120 seats.
After a campaign dominated by worries over security and the cost of living, support for centrist Prime Minister Yair Lapid's ruling coalition collapsed. Lapid stopped short of conceding victory pending the final tally. But he also cancelled his attendance at next week's U.N. climate conference.