Foreign Minister Tzipi Livni won a narrow victory on Thursday in the leadership primary of Israel's ruling Kadima party, and said she hoped to build a coalition as soon as possible.
Livni will replace discredited Kadima leader Ehud Olmert, who announced in July he was quitting the party leadership and then the premiership, because of ongoing investigations against him for alleged corruption.
The 50-year-old mother of two, who in 10 years has gone from being an unknown Tel Aviv attorney to within touching distance of the top job in Israeli politics, defeated her main rival, Transport Minister Shaul Mofaz, with 43.1 per cent of the vote compared to 42 per cent for Mofaz, according to official results announced early on Thursday.
Only 431 votes separated the two candidates, while the other contestants in the race, Interior Minister Meir Sheetrit and Public Security Minister Avi Dichter won 15 per cent of the vote between them.
Turnout was 53.7 per cent of the 74,000 Kadima members eligible to vote.
The primary could also be decisive for the peace process with the Palestinians, with Livni, Israel's chief negotiator and - although a centrist - a staunch advocate of a two-state solution to the Middle East conflict, likely to continue negotiations according to their current format.
The West Bank administration of Palestinian President Mahmoud Abbas welcomed Livni's election.
"Livni was deeply involved in the peace process so we think she will continue peace-seeking with us," senior Abbas aide Saeb Erekat told reporters in Ramallah.
Livni, in a muted speech at sunrise shortly after the final results were announced, told her supporters that "beginning tomorrow (Friday) I will meet with members of the Knesset factions in order to create quickly a coalition that will be able to cope with those challenges ahead of us".
Kadima currently holds 29 seats in the 120-seat Knesset and Livni, once charged by President Shimon Peres with the task, has 42 days in which to form a government. If she is unable to, Peres can either pass the task on to another legislator, or new elections must be held within 90 days.
Livni, if she succeeds in forming a government, will become the second female prime minister in Israel's history, after Gold Meir, who was premier from 1969 to 1974.