The leader of the right-wing Yamina party, Naftali Bennett, will take the helm as Israel’s next prime minister, sending Netanyahu to the opposition benches.
The majority vote in Bennett’s favour proved the final dramatic chapter in Israel’s worst political crisis in modern history.
Over the past two-and-a-half years, the Jewish state held four inconclusive elections as Netanyahu’s rivals struggled to remove him from power.
Ra’am, an Islamist party, will also be part of the coalition, making it the first Arab party to ever join an Israeli government, rather than lend it external support.
Netanyahu could now face a leadership challenge within his right-wing Likud party.
Though he remains by far the most influential and popular figure in Likud, he is also standing trial on corruption and fraud charges which have severely damaged his public image.