Israel's multi-party system reflects the diverse origins of the people and their long practice of party politics in Zionist organizations. The first five Knessets were controlled by coalitions led by the Mapai (Israel Workers Party), under Israel's first prime minister (1949–63), David Ben-Gurion, and then under Levi Eshkol (1963–69). The Mapai formed the nucleus of the present Israel Labor Party, a socialist party, which in coalition with other groups controlled Israel's governments under prime ministers Golda Meir (1969–74) and Yitzhak Rabin (1974–77 and 1992–95).
In September 1973, four right-wing nationalist parties combined to form the Likud, which thus became the major opposition bloc in the Knesset. Unlike the Israel Labor Party, the core of support of which lies with the Ashkenazim and older Israelis generally, the Likud has drawn much of its strength from Oriental Jewry, as well as from among the young and the less well-educated. Besides the State List and the Free Center, the Likud consists of the Herut (Freedom) Movement, founded in 1948 to support territorial integrity within Israel's biblical boundaries and a greater economic role for private enterprise, and the Liberal Party, formed in 1961 to support private enterprise, a liberal welfare state, and electoral reform. The Likud originally advocated retention of all territories captured in the 1967 war, as a safeguard to national security. It won 39 seats in the 1973 elections and then became the largest party in the Knesset by winning 43 seats in the May 1977 elections, to 32 seats for the Israel Labor Party–United Workers (Mapam) alignment. Likud leader Menachem Begin became prime minister of a coalition government formed by Likud with the National Religious Party and the ultraorthodox Agudat Israel.
In elections on 30 June 1981, Likud again won a plurality, by taking 37.1% of the popular vote and 48 seats in the Knesset, compared with the Labor coalition's 36.6% and 47 seats. Begin succeeded in forming a new government with the support of smaller parties. The elections of July 1984 again left both Labor (with 44 seats) and Likud (with 41) short of a Knesset majority; under a power-sharing agreement, each party held an equal number of cabinet positions in a unity government, and each party leader served as premier for 25 months. Labor's Shimon Peres became prime minister in 1984, handing over the office to Likud's Yitzhak Shamir in late 1986. Elections in 1988 produced a similar power-sharing arrangement. In 1989, rotation was ended as Likud and Labor joined in a coalition. After a vote of no confidence, Likud formed a coalition of religious and right-wing parties which held power for two years until 1992. Elections in June gave Labor 44 seats (32 for Likud) and enabled it to form a coalition with Meretz (a grouping of three left-wing parties) and Shas (a religious party) and the support of two Arab parties.
After Netanyahu's governing coalition collapsed at the end of 1998, new elections were called for May of 1999. In the election for a new prime minister, Ehud Barak, heading a Labor-led center-left coalition (One Israel), defeated Netanyahu 56% to 44%. In the legislative elections, Barak's One Israel/Israeli Labor Party coalition won a plurality of 26 seats, followed by 19 for the Likud. After Barak resigned in December 2000, Ariel Sharon won a special prime ministerial election in February 2001 with the largest vote margin ever in Israeli politics. He took 62.4% of the vote to Barak's 37.6%. In 1995, Prime Minister Yitzhak Rabin was assassinated by an extremist Jew. Shimon Peres became Prime Minister and called for early elections, which were held in May 1996. The main issue of the election was Israel's response to terrorist attacks and the disposition of the occupied territories. Labor favored continued and increased negotiations with the PLO and the Palestinian Authority (PA), while Likud favored a tougher stance, increased settlement on occupied lands, and a rethinking of the Oslo accords—at the very least a slowing of the process of land-turnover. The elections were extremely close with the Likud-Geshe-Tsamet coalition winning a slim majority, or 62 seats. In a separate election, Benjamin Netanyahu was directly elected prime minister, the first such election in Israeli history after the passage of a 1996 law.
In March 2001, the Knesset voted to replace the system of direct election for the prime minister established in 1996 back to the parliamentary system. In parliamentary elections held in January 2003, Likud won 29.4% of the vote to Labor's 14.5%. The Shinui, or "Change" Party, came in third with 12.3% of the vote. Overall, the distribution of seats in the Knesset after the election was as follows: Right-wing parties held 45 seats (Likud 38, National Unity 7); center-left parties held 34 (Labor-Meimad 19, Shinui 15); left-wing parties held 17 (Meretz 6, Hadash 3, Am Ehad 3, Balad 3, United Arab List 2); religious parties accounted for 22 seats (Shas 11, National Religious Party 6, United Torah Judaism 5); and the immigrant party Israel Ba-Aliya held 2. Ariel Sharon was chosen prime minister.