The vote follows the collapse of a coalition that last year united eight disparate parties and ousted Netanyahu, ending his record run as prime minister, but which ultimately failed to achieve political stability.
Netanyahu, 73, who is on trial for corruption and breach of trust, warned the race was "a very, very close battle" as he rallied supporters of his right-wing Likud party in the central city of Netanya.
Caretaker Prime Minister Yair Lapid, 58, whose centrist Yesh Atid (There Is a Future) has polled second behind Netanyahu's party, urged people to vote in the "very close" contest.
In a political system where a shift in just one of the 120 Knesset seats up for grabs could cement a ruling coalition, or lead to further deadlock and possible new elections, the outcome remains uncertain once more.
Concerns about voter fatigue were widespread, but as of 6:00 pm (1600 GMT) turnout was the highest since 1999 at 57.7 percent, a rise of 6.2 percentage points compared with the last election in March 2021, according to the Central Elections Committee.
At a polling station in Tel Aviv, voter Amy Segal, 26, aired her frustration at being asked to vote yet again after years of deadlock.
"Each year there's a new election, there's no political stability," she told AFP. "I feel like it doesn't matter who you vote for, nothing will change."
Polls close at 10:00 pm (2000 GMT), when Israeli networks will give their first results projections.
Whoever is tapped to form a government will need support from multiple smaller parties to clinch a 61-seat majority.
Extreme-right leader Itamar Ben-Gvir may be key to helping Netanyahu return to power, as his Religious Zionism bloc has gained momentum in recent weeks and could come third in the election.
Ben-Gvir, who wants Israel to annex the entire West Bank, promised a "full right-wing government" led by Netanyahu, after voting near his settlement home.
Justice Minister Gideon Saar, a former Likud heavyweight who broke with Netanyahu and now leads his own party, warned Israel risked electing a "coalition of extremists".
The vote is being held against a backdrop of soaring violence across Israeli-annexed east Jerusalem and the occupied West Bank.
At least 29 Palestinians and three Israelis were killed across the two territories in October, according to an AFP tally.
The Israeli military shut checkpoints leading to the West Bank and closed the crossing with the blockaded Gaza Strip throughout election day.
While many candidates have cited security as a concern, none have pledged to revive moribund peace talks with the Palestinians.
The soaring cost of living has been a hot issue this election as Israelis, having long endured high prices, are feeling the pinch even more amid global economic turmoil linked to Russia's invasion of Ukraine.
Lapid was the architect of the last coalition, which for the first time brought an independent Arab party into the fold and included others from the right and left.
In Tel Aviv, voter Gidi Bar Ilan, 30, said the short-lived coalition "demonstrates that we can sit together".
The unlikely alliance of the last government was made possible after Mansour Abbas pulled his Raam party from a united slate with other Arab-led parties, paving the way for him to join the coalition.
But Raam's pioneering support for a coalition is not viewed positively across Arab society, which makes up around 20 percent of Israel's population.
"He tried, but he didn't bring anything. No change, no money," said voter Faris Mansour from the central Arab town of Tirah.
The 54-year-old told AFP he had voted for the Balad party which rejects participation in Israeli governance.
Recent months have seen further divisions within the Arab bloc, which is running on three separate lists in a move expected to weaken the minority's representation in parliament.
Abbas remained optimistic Tuesday that "this process of cooperation" would continue, yielding "results for the Arab society, and for the Israeli society in general".