Benjamin Netanyahu submitted his right-leaning government to parliamentary approval yesterday and assured Palestinian leaders that peace with Israel was possible before being sworn in as the new Israeli Prime Minister last night.
Mr Netanyahu, whose right-wing Likud party emerged on top in coalition bargaining after a February 10 election, also hit out at Iran and "extremist Islam" for threatening the existence of the Jewish state.
"The greatest danger to humanity and our state of Israel stems from the possibility that a radical regime will arm itself with nuclear weapons," he said, in indirect reference to Iran.
Returning to power 10 years after he was voted out as Prime Minister, Mr Netanyahu read out a Cabinet list that included ultranationalist Avigdor Lieberman as Foreign Minister. His policies towards Israeli Arabs have stoked international concern.
Parliament backed the appointments after a debate that lasted several hours.
"I say to the Palestinian leadership that if you really want peace we can achieve peace," Mr Netanyahu told a Knesset session interrupted by heckling from Arab and left-wing lawmakers.
He offered negotiations on "three parallel tracks, economic, security and diplomatic" with the Palestinian Authority.
While describing a final peace settlement under which Palestinians would run their own affairs, Mr Netanyahu made no specific mention of establishing a Palestinian state - a key demand of President Mahmoud Abbas and backed by Washington.
His coalition pact binding the various parties, however, contains a pledge to respect Israel's international agreements, a formula that includes accords on a Palestinian state.
"Under a permanent settlement the Palestinians will have all the necessary authority to rule themselves, except for those that would threaten Israel's existence and security," he said. Anything less than an explicit commitment to what is called the two-state solution to the Israeli-Palestinian conflict could put Mr Netanyahu on a collision course with Washington and the European Union.
Palestinian officials say Mr Netanyahu must clearly endorse statehood for peace talks, currently frozen, to succeed.
He has said he wants to focus negotiations on shoring up the Palestinian economy in the West Bank rather than on territorial issues that have blocked progress towards a settlement.
Mr Netanyahu, like his predecessor Ehud Olmert, has said Israel, widely believed to be the Middle East's only atomic power, will not tolerate Iran turning its nuclear programme into weapons. Iran denies it is seeking such an arsenal.
After the parliamentary vote, Mr Netanyahu took the oath of office and replaced Mr Olmert, whose three-year tenure was marked by a reopening of land-for-peace talks with the Palestinians, wars against Islamist militants in Lebanon and the Gaza Strip - and the corruption scandal that led to his resignation.
Israeli officials, diplomats and analysts have predicted Prime Minister Netanyahu will sidestep isolation by easing slowly into talks on Palestinian statehood and renewing peace overtures to Syria.
They said Mr Netanyahu, who served as Prime Minister from 1996 to 1999, was likely to make clear to world powers that he, and not the outspoken Mr Lieberman, makes the decisions on diplomacy.