Israeli Prime Minister Benjamin Netanyahu and rival Benny Gantz on Monday reached an agreement to share power, bringing the country closer to an end of more than a year of political paralysis.
It was made possible after Mr Gantz abandoned his refusal to serve with Mr Netanyahu while he faces corruption charges.
He said he dropped the pledge because of changed circumstances amid Israel's coronavirus outbreak.
One of the provisions of the deal would allow Parliament to annex West Bank territory for the first time, by July 1, Bloomberg reported.
That would be in keeping with the guidelines of US President Donald Trump's controversial plan for Middle East peace.
Mr Netanyahu, the head of parliament's biggest party, Likud, will serve for the first 18 months, the Ynet website reported.
The Labour party, which was all but wiped out in the last election, has also agreed to join the government, Ynet said.
"I promised the state of Israel a national emergency government that will act to save the lives and livelihoods of Israeli citizens," Mr Netanyahu tweeted shortly after the deal was announced.
Mr Gantz said the deal had "prevented a fourth election".
"We'll fight coronavirus and we will take care of Israeli citizens," he tweeted.
Hanan Ashrawi, member of the Palestine Liberation Organisation’s executive committee, criticised the coalition agreement for allowing Mr Netanyahu to stay in power.
“Israel now will have the same racist, extremist, anti-democratic prime minister who is indicted on three corruption charges, and will also have annexation on the agenda,” Ms Ashrawi tweeted.
The deal still has to approved by Parliament for the government to be installed.
The deal, after weeks of troubled negotiations, would pull Israel from its policy gridlock just as it needs to find huge sums of money for the economic fallout from the coronavirus crisis.
It may also improve Mr Netanyahu’s legal position by cementing his status as the people’s choice for leader, Abraham Diskin, an emeritus professor at Hebrew University in Jerusalem, told Bloomberg.
“He is the prime minister blessed with the legitimacy of the majority of the people, including Gantz,” Mr Diskin said before the agreement was reached.
It would shift the pressure to Israel’s High Court, which will have to ultimately rule on Mr Netanyahu’s corruption case on appeal if he were convicted, he said.
The prime minister’s trial, delayed because of the coronavirus outbreak, is to start in late May.
Mr Gantz, a former military chief, was given first shot at building a coalition after Israel’s third consecutive election on March 2.
But he faced stiff resistance within his camp against co-operating with the Joint List of Arab parties.
As that option unravelled and the virus crisis deepened, he began focusing on governing together with Mr Netanyahu to address the mounting toll of the health emergency and avoid a fourth election at this delicate time.
Israel, a country of 9 million, has more than 13,000 confirmed cases of the disease, and more than 170 people have died.
Lockdown measures and travel restrictions, slightly loosened on Sunday, have sent unemployment surging to 26 per cent from less than 4 per cent.
The Bank of Israel predicts a 5.3 per cent economic contraction this year.
The Finance Ministry sees joblessness still hovering about 10 per cent by the end of the year.
Officials recently approved an augmented 80 billion shekel (Dh 82.63bn) aid programme to address the effects of the virus, equal to about 6 per cent of gross domestic product.
Mr Gantz’s support for a unity government initially led by Mr Netanyahu caused the break-up of his Blue and White, a bloc of politicians from across the political spectrum formed expressly to remove the scandal-tainted prime minister.
Mr Netanyahu is accused of taking gifts and scheming to tilt laws to benefit media publishers in exchange for sympathetic coverage.