1996-1999
The 1966 election campaign was extremely personal and aggressive. Netanyahu won by fewer than 30,000 votes and formed a right-wing coalition with the religious parties, which at first enjoyed a handsome majority. Two additional agreements were signed with the Palestinians: the Hebron Agreement in January 1997 and the Wye River Memorandum of October 1998; but the momentum and spirit of the peace process were lost.

In the economic sphere, the policy of liberalizing the economy continued, even though the previous Labor government had brought about greater privatization than the Likud. The high interest-rate policy of the Bank of Israel and the policy of financial restraint of the Finance Ministry encouraged economic recession, which would probably have occurred in any case.

Despite personal problems which Netanyahu had with many of his senior ministers, several of whom left the government (a similar number of resignations had only occurred in the first Begin government), it looked as if his government would survive its full term until November 2000.

However, due to strong opposition in the government to the Wye agreement, which also resulted in the state budget for 1999 not being passed until the beginning of February 1999, the Knesset voted on January 4 to dissolve itself and hold new elections on May 17.