The United States expressed concern on Wednesday of the appointment of Yisrael Beytenu leader Avigdor Lieberman as Israel's defense minister.

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US State Department spokesman Mark Toner said the opposition of some Israeli cabinet ministers to a Palestinian state alongside Israel raised "legitimate questions" about the direction of Israeli policy but he said the United States would judge the new government based on its actions.

"We are going to work with this government as we have with every Israeli government that preceded it with the goal of strengthening cooperation and we remain steadfast in our commitment to the security of Israel and in our commitment to working towards a two-state solution,” Toner told reporters.

Incoming defense minister Lieberman and Prime Minister Netanyahu (Photo: EPA)

Lieberman's return to office - he was previously foreign minister - has raised questions at home and abroad given his past criticism of Israel's Arab minority, US-sponsored peace talks with Palestinians and regional powers Egypt and Turkey.

Once Lieberman is sworn in, Netanyahu will have a government of 66 legislators, widening his current one-seat majority in the 120-member parliament, a goal the prime minister has said he has sought since winning a fourth term last year.

After signing a coalition agreement with Yisrael Beytenu, Netanyahu sought to assuage concerns of the makeup of his government, after it has been dubbed the most right-wing in Israel's history.

"My government remains committed to pursuing peace with the Palestinians, pursuing peace with all our neighbors," Netanyahu said. "My policy has not changed. We will continue to pursue every avenue for peace, while ensuring the safety and security of our citizens."

He said a broader and more stable government would make it easier to "seize new opportunities" in the region, a reference to potential peace moves with Arab states that share Israel's concern about Islamist militancy and Iran.

Palestinian officials said that with Lieberman, who lives in a settlement in the West Bank, back in the cabinet as defense minister, prospects for reviving statehood negotiations that collapsed in 2014 had grown dimmer.

US State Department Spokesman Mark Toner on Lieberman joining gov't

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Speaking in English, Lieberman, who once famously threatened to bomb Egypt's Aswan dam and has called for the assassination of Hamas Islamist leaders in Gaza, promised a "responsible and reasonable" policy.

"At the end of the day my intention (is) to provide security and of course all of us we have a commitment, strong commitment, to the peace, to the final status agreement (with the Palestinians)," said the Soviet-born party leader.

Nabil Abu Rdainah, the spokesman for Palestinian President Mahmoud Abbas, said: "What's important is deeds not words... Israel should learn the true lesson from making peace because there can be no peace and no stability in the region unless the Palestinian cause is resolved."

Netanyahu began negotiations with Lieberman last week after coalition talks failed with the Zionist Union, the main opposition. The courting of Lieberman came as a surprise as he and Netanyahu have been sharply dismissive of one another.

Several former Israeli defense ministers have criticized Lieberman's appointment to the sensitive post, citing the politician's relative lack of military experience.

Yisrael Beytenu has six legislators, but one of them, Orly Levi-Abekasis, has said she is leaving the party and would vote independently in parliament, citing what she called its failure to pursue economic and social reforms.

Levi-Abekasis's spokesman said on Wednesday she was still formally a member of Yisrael Beytenu as procedural issues had yet to be finalized.

Yisrael Beytenu will become the sixth party in Netanyahu's religious-nationalist coalition. The deal prompted Moshe Ya'alon, a Likud member and former general, to quit as defense minister in protest on Friday.