Netanyahu says talks should begin without any preconditions. He also says a partial settlement freeze he imposed in 2009 and 2010 failed to bring about negotiations, and says the real obstacle to peace is Palestinian intransigence.
Internationally, Netanyahu has found little sympathy. His allies in Washington and Europe have condemned recent settlement plans in unusually harsh language, and European countries have begun to hint of punitive measures against Israel.
In a sign of displeasure with Netanyahu, the U.N. General Assembly voted overwhelmingly in November to recognize a Palestinian state in the West Bank, Gaza and east Jerusalem. Netanyahu rejects a pullback to Israel's 1967 lines.
This week, President Barack Obama was quoted as saying that Netanyahu's unwillingness to make concessions to the Palestinians is plunging Israel into diplomatic isolation. "Israel doesn't know what its own best interests are," Obama was quoted by American columnist Jeffrey Goldberg, who is known to have good contacts in the White House, as saying.
Netanyahu responded to the report in an interview Saturday night to Israel's channel 2 TV. He said relations are good with the U.S. but "there are differences of opinion."
"When they tell me to return to 1967 lines, I stand against it. When they tell me not to build in Jerusalem, I stand against it," Netanyahu said.
"It would be terribly easy to capitulate — I could return to indefensible borders and divide Jerusalem and let Hamas get 400 meters from my home ... (But) I have to stand firm on our vital interests even when it's not popular, that is the prime minister's job," he said.
Some Israelis conclude that the country's very existence could be in question if it does not reach a peace accord with the Palestinians. The continued occupation of millions of disenfranchised Palestinians will turn Israel into an apartheid-like country with a Jewish minority ruling over what will ultimately be an Arab majority, they say.
This argument, once considered radical in Israel, has begun to go mainstream. Perhaps its most vocal proponent is former Foreign Minister Tzipi Livni, who four years ago led peace talks with the Palestinians and recently founded a new party whose primary aim is to reach a peace agreement. "Netanyahu is leading us toward the end of the Jewish state," she said recently.
Netanyahu himself alluded to the issue Friday in an interview with Israel TV.
"I am not in favor of a binational state," he said. "We need to reach a solution. I don't want to rule the Palestinians and I don't want them to rule us and threaten our existence."
However, he appears in no hurry to act accordingly, and the left and its supporters are increasingly bold in predicting doom.
Earlier this month, the recently retired head of Israel's Shin Bet internal security service, Yuval Diskin, criticized Netanyahu for failing to aggressively press ahead with peace efforts during a time of calm.
"If I cause the Israeli voter to think twice before choosing parties and leaders that are not worthy because they are actually not leading us where we should be going, I've done my part," Diskin said.
Such criticism has fueled speculation that Netanyahu will explore the possibility of bringing centrist partners into his coalition. The likely candidates would be Livni's new party The Movement and There is a Future, another newcomer led by former TV talk-show host Yair Lapid.
Both candidates have promised to drive a hard bargain. Appearing on TV Thursday night, Livni said she would join Netanyahu only if there are serious peace efforts and she is given a key role.
"I will not sit in a government that will continue the stalemate," she said.
Lapid has indicated more flexibility, focusing his campaign primarily on the plight of Israel's struggling middle class. But he told The Associated Press this week that he would not be a "fig leaf" for an extremist government.
The winner of Tuesday's election will have six weeks to put together his coalition. Netanyahu has sent mixed signals in interviews, saying that he wants a broad government to ensure stability but also saying that partners will have to accept his policies. The conventional wisdom is that the coalition will be even more hard-line than the outgoing coalition.
The prospect of another Netanyahu term has fueled a sense of despair among Palestinians, who fear that his ambitious plans for settlement construction over the next four years could kill their dreams of independence. Their hope is that Obama, emboldened by his own re-election, will put heavy pressure on Netanyahu to return to negotiations.
"The first strong impression is that peace is not on the agenda of the Israeli parties, and it's clear that Netanyahu is winning," said Mohammed Ishtayeh, an aide to President Mahmoud Abbas.
Associated Press Mohammed Daraghmeh in Ramallah, West Bank, contributed to this report.