Israeli Prime Minister Benjamin Netanyahu launched talks with rightwing hardliner Avigdor Lieberman to join his coalition Wednesday, shattering the prospects of a unity government working for a Palestinian peace deal.

The surprise development comes after opposition head and Labour chief Isaac Herzog had indicated his willingness to join Netanyahu's rightwing-led coalition.

But Netanyahu's Likud party said he and former foreign minister Lieberman had decided to form negotiating teams for the latter's six-seat opposition Israel Beitenu to join the 61-member coalition.

Since forming his government a year ago, Netanyahu has not concealed his ambition to expand his razor-thin majority in Israel's 120-member parliament.

Months of secret talks between Netanyahu and Herzog, whose party forms the Zionist Union along with the centrist Hatnuah, gained headlines in recent days.

The Labour leader insisted that a national unity government could help advance peace with the Palestinians, amid fierce opposition from members of his party to joining the coalition.

But in a press conference Wednesday, Lieberman -- who since its inception in May 2015 has branded the coalition as "defeatist" -- said he would be open to joining Netanyahu's team if key demands were met.

Netanyahu summoned him to a meeting a short while later.

For his part, Herzog said Netanyahu was faced with "a historic choice" to "either embark on a journey of war and funerals" with Lieberman or choose a path of "hope for all (Israeli) citizens".

"We won't negotiate in parallel to Lieberman," he stressed.

Labour members criticised Herzog for what they termed his failed attempt to "crawl into the coalition," as reports emerged that Netanyahu offered Lieberman the coveted defence portfolio.

Lieberman's entry into the government would be closely watched by the international community and the Palestinians.

He has called for Gaza to be dealt with "like Chechnya" and urged Israel to treat its Hamas rulers "like the United States did with the Japanese in World War II."

The former foreign minister also has a history of controversial statements about Arab Palestinians living in Israel, calling lawmakers from the Arab Joint List "terror supporters".

The current defence minister is Moshe Yaalon, a level-headed former army chief of staff who has been at loggerheads with Netanyahu after insisting senior military officers should "speak their mind".

His remarks were perceived as a public show of support for Major General Yair Golan, deputy head of the armed forces, who made comments comparing contemporary Israeli society to Nazi Germany.

Yaalon stood up for Golan, stressing that military commanders should not only "lead soldiers into battle" but also teach them "values, with a compass and conscience".

Netanyahu had criticised the deputy chief of staff's "outrageous" remarks, adding however a few days later that "the affair is behind us".

The outspoken Lieberman has publicly supported a soldier accused of manslaughter for shooting dead a wounded and prone Palestinian assailant, in contrast to both Netanyahu and Yaalon who both condemned the killing.

Sitting in the courtroom with the soldier's family during initial hearings, Lieberman said he sought to "balance the crude intervention of the prime minister and defence minister" in the case.

The stocky 57-year-old Moldova native had stepped down as foreign minister in 2012 for nearly a year to fight corruption charges, and in 2015 joined the opposition ranks.

*This report was edited by Ahram Online