For as long as she can remember, Mary Giacaman, a Christian Palestinian, has watched the outcome of the Israeli election on TV. “But not this year,” she explained. “It was too depressing, and anyway I knew what would happen.”

This Holy Week, the 56-year-old Catholic will be attending mass each morning as usual at Bethlehem’s Church of the Nativity across the square from her olive wood carved souvenir shop; she will spend a festive Easter day with her sons, daughters and six grandchildren. If nothing else, it will be a welcome distraction from a “very bad” election result, which saw a decisive victory for prime minister Benjamin Netanyahu.

“For a just peace, both sides need not just to take but to give as well; the people could get together in peace but the problem is the politicians,” she said. None more so, she believes, than “Bibi” Netanyahu. Giacaman expects his new government to be even more rightwing and dialogue-resistant than the last.

Inside Israel, this personality-focused election was seen as a referendum on Netanyahu: should he continue to govern despite three looming corruption indictments and the possibility of a fourth? Or was it, after nearly a decade, time for a change? By contrast, Palestinians in the occupied territories are in a unique position: every aspect of their daily lives will be affected by the coalition government that he will now form, and yet they had no vote. And few of them see any good coming of a choice they were powerless to affect. In Bethlehem, at the desolate north end of the city where the eight-metre-high concrete separation barrier cuts Palestinians off from Rachel’s Tomb and the road to Jerusalem – accessed only through one of the West Bank’s most notorious military checkpoints – Hamoud Abdullah, 28, is rather more outspoken: “Yes we hoped for change, and even someone who wanted peace,” he said. “Netanyahu is doing a lot of shit to us.”

Shopkeeper Abdullah plies the only trade operating in this neighbourhood: the sale of Banksy-themed art. Visitors can buy separation wall-themed T-shirts, and stencils to make copies of the elusive artist’s famous Bethlehem images, which decorate the barrier: a girl flying over the wall to freedom by clutching a bunch of balloons, an Israeli soldier checking the ID of a donkey. This otherwise bleak corner – unlike the main part of Bethlehem – is in Area C, the section of the West Bank that Netanyahu threatened to annex in the closing stages of his campaign. As it is, says Abdullah, “the Palestinian police have to co-ordinate with the Israeli army if they want to come here.”

But if Netanyahu’s ultra-nationalist would-be coalition partners get their way, Israel will unilaterally claim full sovereignty over Area C, removing any lingering pretence that his government would ever agree a two-state solution.

Facebook Twitter Pinterest Shopkeeper Hamoud Abdullah. Photograph: Quique Kierszenbaum/The Observer

The reaction in Bethlehem to the victory of Netanyahu’s Likud party ranges from grim indifference to frustration that if the Israeli public can elect him – for the fourth time – despite his entanglement with the law, the country really must be becoming ever more nationalistic.

“Even though any form of leftwing win was a no go, I still hoped that a bit of conscience would be reflected by their choices,” said hotelier Fadi Kattan, who believes the Knesset “has been going down the drain” since the assassination of Yitzhak Rabin in 1995. “This was a total landslide to the right.”

In fact, Netanyahu’s only challenger as a potential prime minister, the apparently centrist former military chief of staff Benny Gantz – whom the prime minister branded, with scant evidence, a leftist – won 35 seats to Likud’s 36. But the opposition bloc of parties mustered only 55 seats compared with 65 for that of the right wing. The latter grouping includes the five seats of the most extremist faction in Israeli politics, the Union of Right-Wing Parties, creating a potential coalition presence that, as Kattan put it, would make “Marine Le Pen and Nigel Farage look like choirboys.”

Labour, in power for nearly half of Israel’s lifetime, was reduced to just six seats, while Meretz, the one Jewish party unequivocally committed to ending the 52-year occupation, took four, and the four Arab parties, thanks to a sharp fall in turnout, went from 13 seats to 10.

Traditionally, the left-right distinction in Israel applies only to attitudes to the occupied Palestinian territories. But Kattan pointed to an almost unprecedented absence of the Palestinian issue from the election campaign. Even in the economic debate, he said, “there was no mention of the 300,000 Palestinians who work in Israel as the cheapest foreign labour – quite a large element of the workforce.” Back in the 1980s the Israeli left had coalesced around the foundation of Peace Now. Many of their present-day counterparts, he argued, were more concerned with pressing for same-sex marriages and curbing subsidies to ultra-orthodox Jews.

In fact, the nature of the government Netanyahu forms – and therefore its impact on the Palestinians – could turn on Netanyahu’s own fears of prosecution. In the most trailed scenario, he could start annexing West Bank territory as a quid pro quo for an all-right-wing coalition legislating to protect him from criminal trial. If he fails to reach such a deal, he might yet seek a broader coalition with Gantz, in the hope of at least pleasing his close ally Donald Trump, as the US president prepares to unveil a Middle East “peace plan” likely to enrage both Netanyahu’s own right flank and the Palestinians.

Facebook Twitter Pinterest Palestinian authority employee Nasser al Azeh. Photograph: Quique Kierszenbaum/The Observer

Either way, the residents of Bethlehem’s Dheisheh refugee camp, where a Palestinian volunteer medic Sajed Muzher, 18, was three weeks ago shot dead by Israeli troops during a regular incursion, see little reason for hope. “We do not feel at ease after the election,” said Palestinian Authority employee Nasser Al Azeh, 52, who followed the campaign closely on the local Maan TV, and sees Israel increasingly pursuing a policy he calls “transfer”. “By making our lives difficult they hope we will leave,” he said, adding: “Perhaps Netanyahu will attack Gaza.” Certainly Avigdor Lieberman, whose five seats could give him a pivotal say in coalition formation, resigned as defence minister from the last government, protesting at what he saw as Netanyahu’s too soft approach to Gaza.

“Israel will only serve the interest of the occupation,” said Mawwal al Alaysa, 28. “Abu Mazen [Palestinian president Mahmoud Abbas] wants peace and a two-state solution, but this is not the policy of Israel. We have no hope. Our only weapon is steadfastness, staying here and working if we can.” While Alaysa – like many Palestinians – saw no difference between Gantz and Netanyahu, she did say that annexation could make conditions even worse. She has a job with an agricultural relief charity, and part of her work takes her to the nearby Area C village of Wadi Fukin, where, she said, “the [Israeli] settlers are taking land from the Palestinians all the time”. She cited with approval the weekly excursions by local young men to plant trees and cultivate land to demonstrate its Palestinian ownership.

Facebook Twitter Pinterest Mawwal Alaysa outside her home in Daeishe refugee camp. Photograph: Quique Kierszenbaum/The Observer

Meanwhile her impoverished neighbour Inas Mohammed, 42, takes in sewing to support her three children, but has been an unemployed elementary school teacher for 14 years – partly, she says, because of the current funding crisis in both the Palestinian Authority and the UN refugee agency UNRWA, and partly because to get a job “you have to know someone”. She, too, saw no difference between the Israeli candidates. Maybe, she said Yitzhak Rabin had been a “little better” but “in the end they are all the same.” But hadn’t even Yasser Arafat called Rabin a partner? “Yes,” she said. “And both of them are dead.”

Donald Macintyre is the author of Gaza: Preparing for Dawn (OneWorld)