By Ori Lewis
JERUSALEM (Reuters) - Israeli Prime Minister Benjamin Netanyahu convened his outgoing cabinet on Sunday for what he said was probably the last time, signaling he was close to completing the formation of a new government.
Netanyahu's deadline to present a governing coalition is on Saturday, and political commentators predicted he would announce by mid-week that he had an administration in place.
With cabinet posts still to be handed out, Netanyahu was finalizing political partnerships with two parties that made surprisingly strong showings in the January 22 election - centrist Yesh Atid, led by former TV anchor Yair Lapid, and far-right Jewish Home, headed by high-tech millionaire Naftali Bennett.
The centrist Kadima party, which fell from 28 to just two seats, is also expected to join Netanyahu's coalition.
Their participation in a government led by Netanyahu's conservative Likud-Beitenu list will come at the expense of his traditional coalition allies, ultra-Orthodox parties at odds with Yesh Atid and Jewish Home over benefits for religious Jews.
"It appears that this will be the last meeting of this government," Netanyahu said in public remarks at the weekly cabinet session.
With Yesh Atid, Jewish Home, Kadima and the small, centrist Hatnuah party, which has already signed a coalition pact, Netanyahu is set to control 70 of parliament's 120 seats.
The Labour party and ultra-Orthodox and Arab factions will be in opposition.
Lapid, 49, gained wide backing among young, secular voters and has called for a resumption of peace talks with Palestinians that have been frozen for two years in a dispute over Israeli settlement building in the occupied West Bank.
Yael German, a lawmaker in Lapid's party, said he was likely to become finance minister.
Bennett, 40, rejects any future Palestinian state and has strong support among Israeli settlers in the West Bank. Israeli media said he would get the industry and trade cabinet post.
A deal soon will enable Netanyahu, who will begin a third term as prime minister, to shift his focus to the visit later this month by U.S. President Barack Obama.
Netanyahu has said his talks with Obama, with whom he has had a testy relationship, will centre on an Iranian nuclear drive that Israel and the United States fear is aimed at developing atomic weapons, efforts to revive peace talks with the Palestinians and the civil war in Syria.
"We still have huge challenges ahead," Netanyahu told the cabinet, citing Israel's high cost of living and security issues. "The next government will have to deal with that."
Iran says it is enriching uranium for peaceful purposes. Israel, widely seen as the Middle East's only nuclear-armed power, has called for sanctions on Iran to be coupled with a credible military threat against it.
(Reporting by Ori Lewis; Editing by Jeffrey Heller and Alison Williams)