The centrist Kadima Party had already reacted coolly to Netanyahu's alliance overtures the night before, making him more likely to rely on a narrow coalition of nationalist and religious parties that could halt peace talks with the Palestinians, harm Israel's ties with Washington or break apart over conflicting domestic agendas.
Labor Party leader Ehud Barak, Israel's current defense minister, said he told Netanyahu his dovish party would serve as a "responsible, serious and constructive opposition."
Netanyahu, undeterred, pledged to keep courting both Labor and Kadima.
"I am not going to give up in this," he said. "I want to try to make every effort to form a national unity government."
Kadima, led by Foreign Minister Tzipi Livni, won 28 of parliament's 120 seats in the Feb. 10 election, one more than Netanyahu's Likud. However, Netanyahu was appointed to put together the next government because he has the support of a majority of the elected lawmakers. Netanyahu, a former prime minister, now has six weeks to do so.
Netanyahu can easily piece together a coalition of right-wingers who take a hard line against territorial concessions to the Palestinians and have serious disputes among themselves on religious issues. But such a government is likely to face strong opposition both within Israel and from the Obama administration, which has declared its eagerness to push aggressively for a Mideast peace deal.
Although Labor and Kadima both support the concept of a Palestinian state, Kadima is considered key to any moderate alliance because of its size.
But after meeting with Netanyahu late Sunday, Livni said the two remained divided over peacemaking with Palestinians and indicated she, too, was headed into the opposition.
"We didn't reach any agreement. There are deep disagreements on this issue," she said. "This evening did not move us forward on the core issues in a way that we can talk about a joint path."
Livni might be open to joining a coalition with Netanyahu if he were to let her serve as prime minister for half of his term, a so-called "rotation agreement" that Israel has used in the past. But he has rejected such an arrangement.
Ehud Olmert, Israel's outgoing prime minister, continues in a caretaker role until Netanyahu forms a new ruling coalition.
© 2009 CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.