WH, Senators to Begin Push on Immigration Reform

The White House and a bipartisan group of senators next week plan to begin their efforts to push for comprehensive immigration reform.

President Barack Obama will make an announcement on immigration during a Tuesday trip to Las Vegas, Nevada, the White House said on Friday. The Senate group is expected make their plans public around the same time, the Associated Press reported.

See Also: Where Do Labor Unions Stand on Immigration?

For Obama, immigration reform is a campaign promise that has remained unfulfilled from his first White House run in 2008. During his 2012 re-election campaign, the president vowed to renew his effort to overhaul the nation's immigration system. It has long been expected that Obama would roll out his plans shortly after his inauguration.

The president's trip to Las Vegas is designed "to redouble the administration's efforts to work with Congress to fix the broken immigration system this year," the White House said.

Ever since November's election, in which Latino voters turned out in record numbers, Republicans and Democrats have expressed a desire to work on immigration reform. Obama has long supported a bill that would make many of the nation's 11 million undocumented immigrants without criminal records eligible to apply for an earned pathway to citizenship, which includes paying fines and learning English.

Charles Dharapak/AP Photo

But the debate over a pathway to citizenship is expected to be contentious. Other flashpoints in an immigration reform push could include a guest-worker program, workplace enforcement efforts, border security, and immigration backlogs.

In a statement, the White House said that "any legislation must include a path to earned citizenship."

Ahead of his immigration push next week, Obama met today with a group of lawmakers from the Congressional Hispanic Caucus (CHC), including chairman Rubén Hinojosa (D-Texas) , Sen. Bob Menendez (D-N.J.), Democratic Caucus Chair Rep. Xavier Becerra (D-Calif.), and CHC Immigration Task Force Chair Rep. Luis Gutierrez (D-Ill.), the latter's office said. CHC members are expected to play a pivotal role in the debate.

"The president is the quarterback and he will direct the team, call the play, and be pivotal if we succeed. I am very optimistic based on conversations with Republicans in the House and Senate that we will do more than just talk about the immigration issue this year," Gutierrez said in a statement following the CHC meeting with Obama. "The president putting his full weight and attention behind getting a bill signed into law is tremendously helpful. We need the president and the American people all putting pressure on the Congress to act because nothing happens in the Capitol without people pushing from the outside."

A bipartisan group of eight senators, which includes Menendez, has also begun talks on drafting an immigration bill and will play an integral part in the process of passing a bill through Congress. Sen. Marco Rubio (R-Fla.), who has been participating in talks with others senators, has also unveiled his own outline for an immigration proposal.

The group of senators have reportedly eyed Friday as the date when they'll unveil their separate proposal, according to the Washington Post.

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Japan envoy says territory disputes with China can be resolved

BEIJING (Reuters) - Japan believes tensions with China fanned by a dispute over a group of uninhabited islands can be resolved, a special envoy from Tokyo said on Friday after meeting China's president-in-waiting, Xi Jinping.

Natsuo Yamaguchi, head of New Komeito, the junior partner in Japan's ruling coalition, said Japan will take a broad view in dialogue with Beijing to resolve the dispute between the world's second- and third-largest economies, which has escalated in recent weeks.

"Japan wishes to pursue ties with China while looking at the big picture," Yamaguchi told reporters after his meeting with Xi, the chief of China's ruling Communist Party who is set to take over as president in March.

"I firmly believe our differences with China can be resolved," Yamaguchi said, adding that he did not directly discuss the islands issue with Xi.

Japan's nationalization in September of some of the islands, known as Senkaku in Japan and Diaoyu in China, sparked violent anti-Japanese protests across China. Some Japanese businesses were looted and Japanese citizens attacked.

Japanese manufacturers reported considerably lower sales in China in the following months.

Japanese military planes have in recent weeks been scrambled numerous times against Chinese planes approaching airspace over the islands.

Chinese planes have been shadowing Japanese aircraft elsewhere over the East China Sea and patrol vessels from the two countries have played a game of cat-and-mouse near the islands.

Yamaguchi said he delivered a letter to Xi from Japanese Prime Minister Shinzo Abe.

"We agreed that it is important to continue dialogue with the aim of holding a Japan-China summit between the two leaders," he said, though no specific details were given.

While Yamaguchi has no formal position in the government, he is leader of relatively dovish New Komeito, which joined the Liberal Democratic Party in its return to power last month. LDP leader Abe became prime minister.

China insists the islands are its territory and that it will brook no dispute over the matter.

The islands were put under Japan's control in 1895 and were part of the post-World War Two U.S. military occupation zone from 1945-72. They were then returned to Tokyo by U.S. authorities in a decision China and Taiwan later contested.

China has asked the United Nations to consider later this year the scientific validity of its claim over the islands as a natural extension of its continental shelf under a U.N. convention.

Japan says the world body should not be involved.

(Reporting by Terril Yue Jones, writing by Michael Martina,; editing by Jonathan Standing and Ron Popeski)

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Xi Jinping given Japan PM's letter amid islands row

BEIJING: An envoy from Tokyo handed Chinese leader Xi Jinping a personal letter from new Japanese Prime Minister Shinzo Abe on Friday, in a meeting aimed at smoothing relations amid a bitter territorial row.

Natsuo Yamaguchi, head of the New Komeito party, the junior partner in Japan's ruling coalition, is the most senior Japanese parliamentarian to visit China since the long-running row over disputed islands intensified last September.

At the Great Hall of the People in Beijing both sides expressed appreciation for the trip before beginning private talks, and it was not revealed what the letter said.

"Mr Yamaguchi visits China at a period in which Sino-Japanese relations face a special situation. We attach great importance to your visit," said Xi, the head of China's ruling Communist party and the country's president-to-be.

Yamaguchi said he was "incomparably happy" about the meeting.

While he has no official role in the Tokyo government headed by the hawkish Abe, the occasion was a rare positive step as the territorial dispute weighs heavily on relations between the two Asian giants.

Beijing has repeatedly sent ships to waters near the islands since Japan nationalised part of the chain in September, a move that triggered a diplomatic dispute and huge anti-Japan demonstrations across China.

China has also sent air patrols near the Tokyo-controlled islands, known as the Senkakus in Japan but claimed by Beijing as the Diaoyus. The chain could sit atop vast mineral reserves, it is believed.

Earlier this week, Yamaguchi said he hoped to improve ties but that Tokyo had no plans to compromise over the islands.

"I would like to make a step toward opening the door to normalising our relations," he told reporters before his departure.

Regarding the islands, he said: "Our stance is that no territorial problem exists. That's a shared recognition among the government and coalition."

- AFP/fa

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Won't get fair treatment in BJP without Yeddyurappa: Shobha Karandlaje

BANGALORE: Even as chief minister Jagadish Shettar delays acceptance of her resignation letter from the ministry - purportedly to arm-twist the BJP rebels - Shobha Karandlaje wants to get done with the party at the earliest. In an interview to TOI, Shobha claims she can experiment with her political career by leaving a national party like the BJP.

Why did you quit the BJP and RSS, which helped you become what you are today?
With former CM B S Yeddyurappa leaving the BJP, who could I trust and bank upon for my political future? This is the question I posed to BJP seniors. As a minister for the past four-and-a-half years, nobody encouraged or supported me other than Yeddyurappa. So whom do I trust in the BJP? The party adopted one rule for Yeddyurappa and another for others, hatched conspiracies against him and were successful.

Will I get a fair treatment now without him in the BJP?

Is there no one in the BJP, who will encourage you?
Besides Yeddyurappa, BJP leader Arun Jaitley stood by me when I was dropped from the cabinet to placate the Reddy brothers in 2009. Jaitley was concerned that I should be reinducted into the cabinet after things became better. Sushma Swaraj was also helpful, but after a time withdrew.

What future do you see for yourself in the KJP vis-vis a national party like BJP, which would have given you a wide political canvass?
Political parties needn't always be governing. I am a person who needs freedom to work and I will get this in KJP. A regional party is inevitable to amplify the issues pertaining to Karnataka. In New Delhi, only the voices of J Jayalalithaa, Mamata Banerjee, Nitish Kumar or Biju Patnaik are heard, only because they are strong regional parties. National parties in Karnataka have been taken for granted.

There is apprehension among those wanting to join the KJP that you will call the shots. Recently, Kannada actor Madan Patel quit, accusing you of denying him assembly ticket from Malavalli.
I have not joined the KJP formally. But how many times has Patel visited Malavalli? The ticket has been given to a local candidate Muniraju, who has been nurturing the constituency for the past four years and quit the BJP to join KJP. What's wrong in that? I am least bothered by such talk.

There was a similar complaint against you of interfering in other departments while in the cabinet?
Let those who speak of my interference cite one example of my seeking favours regarding transfers or for issuing tenders. If questions cannot be asked why should there be a cabinet meeting? The CM can call each department's minister and hold discussions. If one wants to get to the truth, such questions are seen as interference. I am not going to break my head on that.

Would you reconsider returning to BJP, if space and trust is ensured to you?
Where are the leaders in the BJP to call me? The party has got fragmented.

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Penalty could keep smokers out of health overhaul

WASHINGTON (AP) — Millions of smokers could be priced out of health insurance because of tobacco penalties in President Barack Obama's health care law, according to experts who are just now teasing out the potential impact of a little-noted provision in the massive legislation.

The Affordable Care Act — "Obamacare" to its detractors — allows health insurers to charge smokers buying individual policies up to 50 percent higher premiums starting next Jan. 1.

For a 55-year-old smoker, the penalty could reach nearly $4,250 a year. A 60-year-old could wind up paying nearly $5,100 on top of premiums.

Younger smokers could be charged lower penalties under rules proposed last fall by the Obama administration. But older smokers could face a heavy hit on their household budgets at a time in life when smoking-related illnesses tend to emerge.

Workers covered on the job would be able to avoid tobacco penalties by joining smoking cessation programs, because employer plans operate under different rules. But experts say that option is not guaranteed to smokers trying to purchase coverage individually.

Nearly one of every five U.S. adults smokes. That share is higher among lower-income people, who also are more likely to work in jobs that don't come with health insurance and would therefore depend on the new federal health care law. Smoking increases the risk of developing heart disease, lung problems and cancer, contributing to nearly 450,000 deaths a year.

Insurers won't be allowed to charge more under the overhaul for people who are overweight, or have a health condition like a bad back or a heart that skips beats — but they can charge more if a person smokes.

Starting next Jan. 1, the federal health care law will make it possible for people who can't get coverage now to buy private policies, providing tax credits to keep the premiums affordable. Although the law prohibits insurance companies from turning away the sick, the penalties for smokers could have the same effect in many cases, keeping out potentially costly patients.

"We don't want to create barriers for people to get health care coverage," said California state Assemblyman Richard Pan, who is working on a law in his state that would limit insurers' ability to charge smokers more. The federal law allows states to limit or change the smoking penalty.

"We want people who are smoking to get smoking cessation treatment," added Pan, a pediatrician who represents the Sacramento area.

Obama administration officials declined to be interviewed for this article, but a former consumer protection regulator for the government is raising questions.

"If you are an insurer and there is a group of smokers you don't want in your pool, the ones you really don't want are the ones who have been smoking for 20 or 30 years," said Karen Pollitz, an expert on individual health insurance markets with the nonpartisan Kaiser Family Foundation. "You would have the flexibility to discourage them."

Several provisions in the federal health care law work together to leave older smokers with a bleak set of financial options, said Pollitz, formerly deputy director of the Office of Consumer Support in the federal Health and Human Services Department.

First, the law allows insurers to charge older adults up to three times as much as their youngest customers.

Second, the law allows insurers to levy the full 50 percent penalty on older smokers while charging less to younger ones.

And finally, government tax credits that will be available to help pay premiums cannot be used to offset the cost of penalties for smokers.

Here's how the math would work:

Take a hypothetical 60-year-old smoker making $35,000 a year. Estimated premiums for coverage in the new private health insurance markets under Obama's law would total $10,172. That person would be eligible for a tax credit that brings the cost down to $3,325.

But the smoking penalty could add $5,086 to the cost. And since federal tax credits can't be used to offset the penalty, the smoker's total cost for health insurance would be $8,411, or 24 percent of income. That's considered unaffordable under the federal law. The numbers were estimated using the online Kaiser Health Reform Subsidy Calculator.

"The effect of the smoking (penalty) allowed under the law would be that lower-income smokers could not afford health insurance," said Richard Curtis, president of the Institute for Health Policy Solutions, a nonpartisan research group that called attention to the issue with a study about the potential impact in California.

In today's world, insurers can simply turn down a smoker. Under Obama's overhaul, would they actually charge the full 50 percent? After all, workplace anti-smoking programs that use penalties usually charge far less, maybe $75 or $100 a month.

Robert Laszewski, a consultant who previously worked in the insurance industry, says there's a good reason to charge the maximum.

"If you don't charge the 50 percent, your competitor is going to do it, and you are going to get a disproportionate share of the less-healthy older smokers," said Laszewski. "They are going to have to play defense."

___

Online:

Kaiser Health Reform Subsidy Calculator — http://healthreform.kff.org/subsidycalculator.aspx

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It's Official: Women Will Serve in Combat

Women will soon be able to serve in combat, as things officially changed with the stroke of a pen today at the Pentagon.

At a joint news conference, Secretary of Defense Leon Panetta and Joint Chiefs of Staff Charman Gen. Martin Dempsey signed a memorandum rolling back a 1994 directive prohibiting women from doing so.

"They serve, they're wounded, and they die right next to each other," Panetta said of women and men in the military. "The time has come to recognize that reality.

"If they're willing to put their lives on the line, then we need to recognize that they deserve a chance," Panetta said, noting that he wants his own granddaughters and grandsons to have the same opportunities in their lives and careers.

The change won't be immediate, however. While Panetta announced that thousands of new positions will now be open to women, he has asked the military branches to submit plans by May on how to integrate women into combat operations. He set a January 2016 deadline for branches to implement the changes, giving military services time to seek waivers for certain jobs.

Both Panetta and Dempsey said they believe the move will strengthen the U.S. military force.

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"Ultimately, we are acting to strengthen the armed forces," Dempsey said. "We will extend opportunities to women in a way that maintains readiness, morale and unit cohesion."

Women have already served in combat in Iraq and Afghanistan, as ABC News' Martha Raddatz and Elizabeth Gorman reported in 2009: Prohibited from serving in roles "whose primary mission is to engage in direct combat on the ground," women in support roles, nonetheless, served in support roles on the frontlines, where they have fought, been wounded and died.

Women have also flown combat missions since 1993 and have served on submarines since 2010.

Panetta noted that 152 women have died serving in the U.S. military in Iraq and Afghanistan. Dempsey said he realized a change was inevitable when he noticed two female turret gunners protecting a senior military officer.

"It's clear to all of us that women are contributing in unprecedented ways to the military's mission of defending the nation," Panetta said. "Women represent 15 percent of the force of over 200,000 [and] are serving in a growing number of critical roles on and off the battlefield.

"I've gone to Bethesda to visit wounded warriors, and I've gone to Arlington to bury our dead. There's no distincton."

Panetta and Dempsey said President Obama supported the move, while warning them to maintain military readiness as they considered the change.

Obama hailed the move in a written statement

"Today, by moving to open more military positions -- including ground combat units -- to women, our armed forces have taken another historic step toward harnessing the talents and skills of all our citizens," he said.

"This milestone reflects the courageous and patriotic service of women through more than two centuries of American history and the indispensable role of women in today's military," Obama said.

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North Korea to target U.S. with nuclear, rocket tests

SEOUL (Reuters) - North Korea said on Thursday it would carry out further rocket launches and a nuclear test that would target the United States, dramatically stepping up its threats against a country it called its "sworn enemy".

The announcement by the country's top military body came a day after the U.N. Security Council agreed to a U.S.-backed resolution to censure and sanction North Korea for a rocket launch in December that breached U.N. rules.

"We are not disguising the fact that the various satellites and long-range rockets that we will fire and the high-level nuclear test we will carry out are targeted at the United States," North Korea's National Defence Commission said, according to state news agency KCNA.

North Korea is believed by South Korea and other observers to be "technically ready" for a third nuclear test, and the decision to go ahead rests with leader Kim Jong-un who pressed ahead with the December rocket launch in defiance of the U.N. sanctions.

China, the one major diplomatic ally of the isolated and impoverished North, agreed to the U.S.-backed resolution and it also supported resolutions in 2006 and 2009 after Pyongyang's two earlier nuclear tests.

Thursday's statement by North Korea represents a huge challenge to Beijing as it undergoes a leadership transition with Xi Jinping due to take office in March.

China's Foreign Ministry called for calm and restraint and a return to six-party talks, but effectively singled out North Korea, urging the "relevant party" not to take any steps that would raise tensions.

"We hope the relevant party can remain calm and act and speak in a cautious and prudent way and not take any steps which may further worsen the situation," ministry spokesman Hong Lei told reporters at a regular press briefing.

North Korea has rejected proposals to restart the talks aimed at reining in its nuclear capacity. The United States, China, Russia, Japan and the two Koreas are the six parties involved.

"After all these years and numerous rounds of six-party talks we can see that China's influence over North Korea is actually very limited. All China can do is try to persuade them not to carry out their threats," said Cai Jian, an expert on Korea at Fudan University in Shanghai.

Analysts said the North could test as early as February as South Korea prepares to install a new, untested president or that it could choose to stage a nuclear explosion to coincide with former ruler Kim Jong-il's Feb 16 birthday.

"North Korea will have felt betrayed by China for agreeing to the latest U.N. resolution and they might be targeting (China) as well (with this statement)," said Lee Seung-yeol, senior research fellow at Ewha Institute of Unification Studies in Seoul.

U.S. URGES NO TEST

Washington urged North Korea not to proceed with a third test just as the North's statement was published on Thursday.

"Whether North Korea tests or not is up to North Korea," Glyn Davies, the top U.S. envoy for North Korean diplomacy, said in the South Korean capital of Seoul.

"We hope they don't do it. We call on them not to do it," Davies said after a meeting with South Korean officials. "This is not a moment to increase tensions on the Korean peninsula."

The North was banned from developing missile and nuclear technology under sanctions dating from its 2006 and 2009 nuclear tests.

A South Korean military official said the concern now is that Pyongyang could undertake a third nuclear test using highly enriched uranium for the first time, opening a second path to a bomb.

North Korea's 2006 nuclear test using plutonium produced a puny yield equivalent to one kiloton of TNT - compared with 13-18 kilotons for the Hiroshima bomb - and U.S. intelligence estimates put the 2009 test's yield at roughly two kilotons

North Korea is estimated to have enough fissile material for about a dozen plutonium warheads, although estimates vary, and intelligence reports suggest that it has been enriching uranium to supplement that stock and give it a second path to the bomb.

According to estimates from the Institute for Science and International Security from late 2012, North Korea could have enough weapons grade uranium for 21-32 nuclear weapons by 2016 if it used one centrifuge at its Yongbyon nuclear plant to enrich uranium to weapons grade.

North Korea gave no time-frame for the coming test and often employs harsh rhetoric in response to U.N. and U.S. actions that it sees as hostile.

Its long-range rockets are not seen as capable of reaching the United States mainland and it is not believed to have the technology to mount a nuclear warhead on a long-range missile.

The bellicose statement on Thursday appeared to dent any remaining hopes that Kim Jong-un, believed to be 30 years old, would pursue a different path from his father Kim Jong-il, who oversaw the country's military and nuclear programs.

The older Kim died in December 2011.

"The UNSC (Security Council) resolution masterminded by the U.S. has brought its hostile policy towards the Democratic Peoples Republic of Korea (North Korea) to its most dangerous stage," the commission was quoted as saying.

(Additional reporting by Christine Kim in SEOUL, Ben Blanchard and Sui-Lee Wee in Beijing; Writing by David Chance; Editing by Raju Gopalakrishnan)

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Is it a bird? A plane? No, just a guy named Oscar

BUENOS AIRES: He was a self-styled superhero, prowling the gritty outskirts of Buenos Aires wearing a mask and cartoonish outfit and armed only with a flashlight, compass and pepper spray as he took on bad guys.

But now his cover is blown, thanks to an alleged shootout with muggers, and the superhero is charged with carrying an unlicensed gun, police said Wednesday.

The man who called himself Menganno -- Spanish for Joe Blow -- and became famous in Argentine media is actually one Oscar Lefosse, 43, a former cop who served from 1986 to 1996. It turns out his gun license expired a year ago.

On Monday, Lefosse told police that three petty criminals opened fire on his car as he drove with his wife. He returned fire with his Glock pistol.

On his Facebook page, "Menganno" -- 33,000 followers -- posted a photo of what he said was his bullet ridden car.

But a policeman quoted by the news agency Telam said the shots all came from inside the car.

"He could have killed somebody, an innocent bystander. He is irresponsible," the official said.

In an interview with AFP in 2010, Menganno described himself as "a real, flesh and blood superhero. My goal is for all of us to be better and show more solidarity. Injustice makes me sick."

He said then that he only defended himself with a flashlight, pepper spray and a compass, and had a company in the security sector. He did not elaborate.

"I do not walk around the street armed. I keep my gun at home," he said Wednesday on Argentine TV.

Lefosse used to hide his identity behind a mask that was a mix of dark and baby blue and coordinated nicely colour-wise with a Superman style suit he wore, with a symbol on his chest to boot.

-AFP/fl

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Where will you go when BJP comes to power? Nitin Gadkari threatens I-T officials

NEW DELHI: Former BJP president Nitin Gadkari on Thursday dared I-T officials and said 'Where will you go once the BJP comes to power?'

Addressing his supporters in Nagpur, the former BJP chief said that income tax department should realise that the Congress is on its way out.

"There will be no Chidambaram or Sonia to save them, once the Congress is out of power," he said.

Gadkari said that he had been informed by officials sympathetic to the party how I-T and CBI officials were working overtime to indict him.

In a dramatic turn of events, Gadkari was forced to resign as BJP chief after reports of I-T inquiries against some companies allegedly connected to Purti Group.

Gadkari opted out against second term as party president, paving the way for Rajnath Singh to take over as BJP chief on Wednesday.

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Netanyahu turns focus to Iran after narrow election win

JERUSALEM (Reuters) - Hawkish Prime Minister Benjamin Netanyahu has claimed victory in Israel's parliamentary election, shrugging off surprise losses to centre-left challengers and vowing to stop Iran from acquiring nuclear weapons.

However, Tuesday's vote, which also disappointed religiously inspired hardliners, may deflect the premier's focus on confronting Tehran and resisting Palestinian demands as Israel's secular middle-class demanded new attention on domestic issues.

That in turn might draw Netanyahu toward a less fractious relationship with his key ally, U.S. President Barack Obama, who himself embarked on a new term this week with great ambitions.

Interim vote count results on Wednesday showed the Israeli leader's right-wing Likud and the ultra-nationalist Yisrael Beitenu would remain the biggest bloc in the 120-member assembly, but with only 31 seats, 11 fewer than the 42 the two parties held in the last parliament.

That put Netanyahu on course for a third term in office, perhaps leading a hardline coalition that would promote Jewish settlement on occupied land.

But his weakened showing in the ballot, which he had called nine months early in the hope of a strong mandate for his struggle with Iran, could complicate his efforts to forge an alliance with a stable and substantial majority in parliament.

"I am proud to be your prime minister, and I thank you for giving me the opportunity, for the third time, to lead the state of Israel," the 63-year-old leader told a cheering crowd in the early hours of Wednesday at his campaign headquarters.

Netanyahu said he planned to form as broad a governing coalition as possible, suggesting he would seek partners beyond his traditional ultra-nationalist and religious allies. His first call may be to Yair Lapid, a former television anchorman whose centrist, secular party came from nowhere to second place.

"The first challenge was and remains preventing Iran from obtaining nuclear weapons," Netanyahu said.

Iran denies it is planning to build an atomic bomb, and says Israel, widely believed to have the only nuclear arsenal in the Middle East, is the biggest threat to the region.

Netanyahu views Tehran's nuclear program as a threat to Israel's existence and has stoked international concern by hinting at possible Israeli military action to thwart it.

He has shunted Palestinian peacemaking well down the agenda despite Western concern to keep the quest for a solution alive.

Wednesday's count forecast an even split between right-wing parties and the centre-left, with each bloc taking 60 of parliament's 120 seats.

Lapid's Yesh Atid (There is a Future) party should have 19 seats, the interim count showed - a stunning result for a newcomer to politics in a field of 32 contending parties.

Lapid won support amongst middle-class, secular voters by promising to resolve a growing housing shortage, abolish military draft exemptions for Jewish seminary students and seek an overhaul of the failing education system.

He urged Netanyahu "to build as broad a government as possible so that we can bring about real change in Israel".

The once dominant Labour party led by Shelly Yachimovich was projected to take third place with 15 seats. She described Likud victory claims as "ridiculous" before final results were in.

"There is a very good chance, a very good chance, that tomorrow morning Benjamin Netanyahu will not be able to form a government," she declared at her party headquarters.

Reconciling views to build a cabinet will certainly be hard.

"YESH ATID SWEEP"

Some in Netanyahu's party acknowledged that the election had gone somewhat awry. "We anticipated we would lose some votes to Lapid, but not to this extent. This was a Yesh Atid sweep," Likud-Yisrael Beitenu campaign adviser Ronen Moshe told Reuters.

Lapid said before the election he would consider joining a Netanyahu-led government. If that happens, the ultra-Orthodox religious parties which often hold the balance of power in parliament might lose some of their leverage.

After a lackluster campaign, Israelis voted in droves on a sunny winter day, registering a turnout of 66.6 percent, the highest since 2003. That buoyed centre-left parties which had pinned their hopes on energizing an army of undecided voters against Netanyahu and his nationalist-religious allies.

"A big majority of middle class Israelis have voted strongly against the priorities of the last government," said Dan Avnon, a political science professor at Hebrew University.

"These are the people who pay the taxes and serve in the army," he said. "I don't think they can be ignored."

Opinion polls before the election had predicted an easy win for Netanyahu, although the last ones suggested he would lose some votes to the Jewish Home party, which opposes a Palestinian state and advocates annexing chunks of the occupied West Bank.

Wednesday's interim count gave 11 seats to Jewish Home.

The biggest casualty was the centrist Kadima party, which teetered between a minimum parliamentary showing of 2 seats and political extinction, depending on the final vote tally due later on Wednesday.

Kadima had gained the highest number in the previous election in 2009, although its then leader Tzipi Livni failed to put together a governing coalition.

Official vote results will be announced on January 30. After that, President Shimon Peres is likely to ask Netanyahu, as leader of the biggest bloc in parliament, to try to form a government.

WESTERN ANXIETY

Whatever permutation finally emerges, a Netanyahu-led government is likely to resist any push for a peace deal with the Palestinians that would come anywhere near satisfying the moderates who seek a viable independent state alongside Israel.

Naftali Bennet, high-tech millionaire son of American immigrants who leads the hard-right, pro-settler Jewish Home party, was a likely coalition partner despite his election showing, which was less than surging opinion polls had predicted.

Bennet, who advocates annexing West Bank land to Israel, told cheering supporters: "There is only one truth and it is simple. The Land of Israel belongs to the people of Israel."

Britain warned Israel on Tuesday it was losing international support, saying Jewish settlement expansion had almost killed off prospects for a two-state solution.

U.S.-brokered peace talks broke down in 2010 amid mutual acrimony. Since then Israel has accelerated construction in the West Bank and east Jerusalem - land the Palestinians want for their future state - much to the anger of Western partners.

Netanyahu's relations with Obama have been notably tense and Martin Indyk, former U.S. ambassador to Israel, told the BBC the election was unlikely to change that.

"President Obama doesn't have high expectations that there's going to be a government in Israel committed to making peace and is capable of the kind of very difficult and painful concessions that would be needed to achieve a two-state solution," he said.

But Aaron David Miller, once a senior U.S. adviser on the peace process, said a weakening of the right might improve ties: "The fact is, if (Netanyahu) goes with Lapid and he reaches out to the centre, you're going to end up with an American-Israeli rapprochement to a certain degree," Miller told CNN.

Tuesday's vote was the first in Israel since Arab uprisings swept the region two years ago, reshaping the Middle East.

Netanyahu has said the turbulence, which has brought Islamist governments to power in several countries long ruled by secularist autocrats, including neighboring Egypt, shows the importance of strengthening national security.

Foreign policy issues barely registered during the election campaign, with a poll in Haaretz newspaper on Friday saying 47 percent of Israelis thought social and economic issues were the most pressing concern, against just 10 percent who cited Iran.

A major problem for the next government, which is unlikely to take power before mid-March, is the stuttering economy.

Data last week showed the budget deficit rose to 4.2 percent of gross domestic product in 2012, double the original estimate, meaning spending cuts and tax hikes look certain.

(Reporting by Jerusalem bureau; Editing by Alastair Macdonald and David Brunnstrom)

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