The election comes at a troubled time for Israel. Netanyahu's hard line on concessions to the Palestinians has put Israel into conflict with the international community, increasing its diplomatic isolation.
A declining economy and ballooning budget deficit mean painful government spending cuts and possible tax increases are in store for an electorate already bowed by the high cost of living.
In the background looms the possibility that Israel would attack Iran over its suspect nuclear program, a move that would likely draw harsh retaliation by Iran and its proxies on Israel's northern and southern borders.
Still, many voters said they'd cast ballots for Netanyahu's list because they see no viable alternative. Polls suggest hard-line and religious parties that have been his traditional allies will form the core of his next coalition government.
The big question is whether Netanyahu will be able to woo centrist parties with more moderate positions on peacemaking into his governing coalition
-- and whether they would have any influence on his policies.
Netanyahu, 63, was smiling when he arrived early at a heavily secured polling station in Jerusalem with his wife, Sara, and two sons, both first-time voters. After voting, the prime minister told reporters that a flood of ballots for his list "is good for Israel."
The prime minister, whose first government in the 1990s unraveled over similar issues of peace talks and a struggling economy, projected himself during the three-month campaign as a tough leader who protects Israelis' security in a hostile region.
All the polls show his Likud Party -- in alliance with the more hawkish Israel Beitenu party
-- winning more than a quarter of the seats, and together with other rightist and religious parties commanding at least a narrow majority.
Yakov Krugliack of the Nokdim settlement in the West Bank said quality of life was foremost in his mind as he went to the polls.
"The economic challenge will be the biggest challenge of this government," he said. "I would like to have a house, I would like to live a good life with my family."
Thirty-two parties are running for representation in Israel's 120-member parliament. Israel historically has had multiparty governments because no party has ever won an outright majority of 61 seats in the country's 64-year history.
Polls close at 10 p.m. local time (3 p.m. EST, 2000 GMT), and preliminary results are expected about two hours later.
Up to one-sixth of the incoming legislature is expected to be settlers who advocate holding on to captured land the Palestinians want for a future state. The pro-settler Jewish Home
-- a likely coalition partner that has drawn a surprisingly large number of votes away from Netanyahu's list, according to polls
-- is even pressing to annex large chunks of the West Bank, the core of any future Palestinian state.
Motti Saban, a 25-year-old student in Jerusalem, said he would vote for Jewish Home.
"We are right-wing and we want to see a parliament that is more right wing than now," Saban said. While social issues are important, he said, they are being promoted most by left-leaning parties more open to making territorial concessions, including partitioning the holy city of Jerusalem.
"So yes, social issues affect us all, but I won't give up Jerusalem, that's more important," Saban said.
Israel captured east Jerusalem in the 1967 Mideast war and immediately annexed it. The Palestinians want that sector of the city for a future capital, but Netanyahu says Israel won't share sovereignty over the city at the heart of the Israeli-Palestinian conflict.
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Some Israelis warn that the continued occupation of millions of disenfranchised Palestinians will turn Israel into an apartheid-like state where a Jewish minority will ultimately rule over an Arab majority.
Yet the conflict with the Palestinians, long a dominant issue in Israeli politics, has barely registered as a campaign issue. Many Israelis have despaired of the prospect of making peace, believing Israel's best possible offers have been made and spurned, sometimes violently. Many are also disillusioned with the bitter experience of Israel's unilateral pullout from the Gaza Strip in 2005, which led to years of attacks from militants there.
The country's center-left opposition, which rallied around the issue for decades, is badly splintered and has failed to produce a compelling alternative leader. The Labor Party, traditionally the dominant standard-bearer for peacemaking, is now more focused on the average Israeli's frustration at having to struggle to make ends meet.
Prospects for peacemaking would not necessarily be improved even if Netanyahu, in his desire to establish a broad, stable government, reaches across the aisle to co-opt lawmakers interested in clinching an accord. Two moderate partners had joined his current government but ultimately bolted, in part because they didn't think he was serious about making peace.
Talks stalled before he was elected four years ago and never revived in earnest, largely because of conflicts over continued Israeli settlement construction.
Palestinians say the continued construction is a sign Netanyahu is not approaching peacemaking in good faith. Netanyahu rejects their calls for a settlement construction freeze and notes that a 10-month construction slowdown Israel imposed earlier in his term did not bring the Palestinians back to the negotiating table until just weeks before it expired.
Palestinians also fear Netanyahu's ambitious plans for settlement construction could kill their dreams of establishing an independent state in the West Bank, east Jerusalem and Gaza Strip, territories Israel captured in 1967 and still controls to varying degrees.
Their hope is that President Barack Obama, emboldened by his own re-election, will pressure Netanyahu to return to negotiations on their terms. But it is equally possible Obama won't risk squandering political capital on the peace process unless he is convinced Israel is willing to make concessions that Netanyahu has not yet signaled he is ready to make.
Press; By AMY TEIBEL]
Associated Press writer Diaa Hadid contributed to this report.
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