The Knesset was expected to take its initial vote on the 2026 state budget draft on Wednesday, in a test of Prime Minister Benjamin Netanyahu’s government at a time when it has been beset by political fractures.

Netanyahu’s coalition has splintered over the war in Gaza, the ceasefire in October that halted it, and demands by ultra-Orthodox Jewish parties to exempt yeshiva students from mandatory military service.

The budget, as well as an accompanying economic plan, faces an uphill battle for approval as the government has become increasingly polarized. By law, it must be approved by the end of March, or an early election would be triggered (as 2026 is an election year, it would likely mean a vote would be called for late June or July, instead of October).

But possibly signaling that the coalition had found a way forward, two ultra-Orthodox factions in Netanyahu’s coalition, Degel HaTorah and Shas, indicated in the afternoon that they were likely to support the budget in its first reading, enabling the measure to advance, after disagreement over the Haredi conscription regulation bill postponed the budget vote by two days.

Following a meeting between Haredi MKs, Knesset Foreign Affairs and Defense Committee chairman Boaz Bismuth, committee legal adviser Miri Frenkel Shor and coalition whip Ofir Katz, a spokesman for Degel HaTorah spiritual leader Rabbi Dov Lando said that the ultra-Orthodox faction would “support the budget law on first reading and will insist that the conscription law be completed before bringing the budget law to second and third readings.”

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In response, Opposition Leader Yair Lapid complained that ultra-Orthodox political operatives had “set up an alternative Foreign Affairs and Defense Committee for themselves, and together with Bismuth and Ofir Katz they are sitting there and exerting heavy pressure on the committee’s legal adviser, trying to push her to approve changes that the ultra-Orthodox parties want.”


Chairman Aryeh Deri attends a meeting of the Shas party Council of Torah Sages in Jerusalem, July 16, 2025. (Flash90)

“This is horse-trading over the security of the State of Israel, encouraged by Netanyahu,” he said.

Meanwhile, Hebrew media outlets reported that Shas will also support the bill.

According to ultra-Orthodox news site Behadrei Haredim, the Agudat Yisrael faction, which together with Degel HaTorah comprises the United Torah Judaism party, will oppose the budget.

Still, support from Shas and Degel HaTorah would give the bill 64 votes of 120, enabling it to pass its first reading.

Prime Minister Netanyahu told reporters on Tuesday evening that he hoped the budget would pass and was concerned over the prospect of an election ahead of the October schedule.

“We are in a very sensitive situation and I think the last thing we need right now is elections,” he said at a press conference. “We’ll have elections later on this year, but I think it’s a mistake to have them now, and I hope that people understand that and act sensibly.”

A vote was expected late on Wednesday or early Thursday morning, following what was expected to be a long debate on the plenum floor. Even if the budget gets preliminary approval, it still needs to pass two more votes by March 31 to become law.


Prime Minister Benjamin Netanyahu, second from right, ministers and MKs attend a special Knesset session in honor of Albanian Prime Minister Edi Rama in Jerusalem, January 26, 2026 (Yonatan Sindel/Flash90)

Conscription fight

The main issue threatening to topple the coalition is the military conscription bill, with fights over the bill to exempt most yeshiva students from serving plaguing the coalition for months.

Haredi parties have threatened to vote against the budget if a bill is not passed. But most of Netanyahu’s other right-wing coalition partners, as well as the opposition, say Haredi men must share in the burden, especially after two years of fighting in Gaza and Lebanon that have stretched the military’s regular and reserve forces to their limits.

Some 80,000 ultra-Orthodox men aged between 18 and 24 are currently believed to be eligible for military service, but have not enlisted. The Israel Defense Forces has said it urgently needs 12,000 recruits due to the strain on forces caused by the war.

For the past two years, the Haredi leadership has pushed for a law keeping its constituency out of the IDF, after the High Court ruled that decades-long blanket exemptions from army duty traditionally afforded to full-time Haredi yeshiva students were illegal. Since then, coalition lawmakers, dependent on Haredi support to keep them in government, have struggled to find a formulation that could win ultra-Orthodox backing while also meeting demands for the community to share in the burden of mandatory military service.

Finance Minister Bezalel Smotrich on Monday reportedly dared the Haredi parties to dissolve the Knesset, declaring that if they cannot support the 2026 state budget, Israel should hold early elections.


Finance Minister Bezalel Smotrich of Religious Zionism leads a faction meeting at the Knesset in Jerusalem, January 19, 2026 (Yonatan Sindel/Flash90)

Speaking with the Ynet news site, a source close to Smotrich said that the far-right politician was “no longer willing to link the budget law to the [ultra-Orthodox] draft law.”

“If they are not willing, then they should bring a law to dissolve the Knesset,” the source stated, adding that “there is a country here to manage. If we don’t want to vote on a budget, we will go to elections.”

According to Channel 12, Smotrich sent a similar message to Netanyahu, declaring that if the budget didn’t pass its first reading on Monday the Knesset should be dissolved.

Deficit ceiling

In all, state spending would be NIS 662 billion ($214 billion) excluding debt servicing. The deficit ceiling was set at 3.9% of gross domestic product, a level the Bank of Israel deems as too high since it does not allow for a reduction in the debt burden.

“Despite all my reservations and everything included in the budget … it must be passed,” Bank of Israel Governor Amir Yaron said on Wednesday at a meeting of the Knesset’s Finance Committee.

“The deficit target must not creep up, especially given the possibility of additional expenditures due to geopolitical developments.”


Governor of the Bank of Israel Amir Yaron speaks during a press conference at the Finance Ministry in Jerusalem on August 6, 2025. (Yonatan Sindel/Flash90)

The budget deficit slipped to 4.7% of GDP in 2025 from 6.8% in 2023. A spike in defence costs due to the Gaza war pushed the deficit higher over the past two years.

While an October ceasefire has halted most fighting, it has not stopped entirely, and both sides have accused each other of violating the deal’s provisions.

Meanwhile, Israel remains on edge over the possibility of renewed open conflict with Iran, as US President Donald Trump continues to send forces into the region and considers strikes on the Islamic Republic over its brutal repression of protests and its nuclear program.