Israelis voted Tuesday in elections likely to return Prime Minister Benjamin Netanyahu as head of a rightwing coalition that will face the challenges of peacemaking with the Palestinians and Iran's nuclear programme.

Queues were short, or nonexistent, in the early hours of voting, after polling stations opened at 0500 GMT, with many Israelis taking advantage of an election day public holiday to sleep in.

Netanyahu, casting his ballot with his wife Sara and their two sons in the upscale Rehavia neighbourhood of Jerusalem, called on voters to back the joint list of his rightwing Likud party and the secular nationalist faction of former foreign minister Avigdor Lieberman.

"Likud-Beitenu represents all the people. The stronger Likud-Beitenu is, the easier it will be to lead Israel successfully," he said.

Polling ahead of the vote has consistently projected an easy win for the Likud-Beitenu list.

The prime minister is expected to preside over a sharply rightwing government that is considered less likely to achieve a comprehensive peace deal with the Palestinians and could increase Israel's diplomatic isolation.

The government will face key diplomatic and foreign policy questions, including Iran's nuclear programme, which much of the world believes masks a weapons drive, and a Middle East profoundly changed by the Arab uprisings.

But domestic challenges will be no less pressing, with a major budget crisis and austerity cuts on the horizon, even as Israelis express widespread discontent over spiraling prices.

The joint Likud-Beitenu list may be confident of leading those competing for the Knesset's 120 seats, but polls show that the two parties will lose around 10 of their current seats, down to around 32.

The centre-left Labour party is projected to trail in second place with around 17 seats. Its chief, Shelly Yachimovich, is expected to become leader of the opposition after pledging she would not join a Netanyahu government.

The campaign's big surprise has been Naftali Bennett, the young, charismatic new leader of the hardline national religious Jewish Home. He took over the party in November and has quickly become a rising star among settlers.

The party, which firmly opposes a Palestinian state and won just three seats in 2009, is on course to win 15, making it the third faction in parliament and a likely partner in any future coalition government.

Bennett's success has rattled Netanyahu, pundits say, with the premier pushing to stem the defection of voters to Jewish Home by burnishing his own credentials as a defender of Israeli settlement in the occupied territories.

In the German Colony neighbourhood of Jerusalem, a teacher who declined to give her name said she was planning to back Bennet.

"He is strong, and he is religious but not extreme. Young families... can relate to him. We are so tired of Netanyahu," the 32-year-old said.

Elsewhere in Jerusalem, 55-year-old Joe Jamal, casting his ballot in the Katamon neighbourhood, said he foresaw little shift in the political landscape.

"I don't expect much change. I'm still hoping for an alternative, a move to the centre, for which I'm voting," Jamal, a doctor, said.

According to final polls, the rightwing-religious bloc will take between 61 and 67 seats, compared with 53 to 57 for the centre-left and Arab parties.

Some 5.65 million Israelis are eligible to vote, including Arab citizens of Israel, who are expected to stay away from the polls in record numbers.

Voters will be able to cast ballots at 10,132 polling stations, which are open for 15 hours, with television exit polls due to be broadcast immediately after they close at 2000 GMT.