It seems that Tzipi Livni’s Kadima party may be pulling out a very narrow upset over Netanyahu’s Likud. On the other hand, even if Kadima gets the most votes, the exit polls are suggesting parties of the right with just over 60 seats in the Knesset. So it’s not clear Livni would be able to form a government even if they win a plurality of seats.
Late Update: Looking a little deeper into these results it’s a very weird outcome. It looks pretty clear that Netanyahu ‘lost’ in that Kadima will probably get two seats more than Likud. But it also looks clear that parties of the right are going to have like 63 or 64 seats. And in a parliamentary system, who wins a minor plurality doesn’t really mean anything. That said, if Netanyahu can form a government it seems like he’ll come in a substantially weakened state.