A deal was reached by opposition leader Yair Lapid and coalition partner Naftali Bennett just minutes prior to a midnight deadline that would have forced a fifth election in just two years.
Under the new coalition, Lapid and Bennett will split the prime minister role in turns, with Bennett set to serve the first two years.
Lapid will then take over as prime minister and Bennett will serve as the alternate governing head.
In a late-night call to President Reuven Rivlin, Lapid said an agreement had been reached and a coalition formed.
“I commit to you Mr. President, that this government will work to serve all the citizens of Israel including those who aren’t members of it, will respect those who oppose it, and do everything in its power to unite all parts of Israeli society,” Lapid pledged.
The government will be comprised of eight different parties, including the Yesh Atid, Kachol Lavan, Yamina, Labor, Yisrael Beiteinu, New Hope, Meretz and Ra’am, the latter a part of the Islamic movement.
The agreement is the first-ever coalition deal signed by an Arab party.
Rivlin thanked Lapid during their phone conversation and said, “I congratulate you and the heads of the parties on your agreement to form a government. We expect the Knesset will convene as soon as possible to ratify the government, as required.”
The Israeli parliament, better known as the Knesset, is set to vote on approving the new government as early as next week.
If the coalition is approved, Netanyahu’s 12-year rule will come to an end.
Netanyahu, who faces corruption charges, is expected to fight the coalition.
The prime minister condemned the move as the “fraud of the century” earlier this week after Bennett announced his support for the new government, warning Bennett could give power to a “dangerous left-wing government.”
In a nationally televised address, Bennett said he would “form a national unity government” with Lapid in order to “save the country from a tailspin and return Israel to its course.”
The Knesset will require a 61-seat majority in order to permit the new government coalition.
In a Wednesday vote, Isaac Herzog was voted by the Knesset to succeed Rivlin as the 11th president of Isreal.
Herzog will play a leading role in overseeing Israel’s elections and the process of forming a new government as the coalition government looks to oust Netanyahu.
Evie Fordham and the Associated Press contributed to this report.