Avigdor Lieberman, one of the dominant forces in Israeli politics and a man who has raised diplomatic hackles in countless western capitals, is set to be re-appointed as Israel's foreign minister after being acquitted of all charges against him a long-running criminal trial.

The dramatic comeback of the ultra-rightwing politician is likely to shape Israel's political landscape for years to come. Lieberman, 55, is thought to harbour ambitions for the premiership of the country following an alliance with the party of the prime minister, Binyamin Netanyahu, in the general election earlier this year.

Netanyahu has kept the post of foreign minister, which Lieberman held for three years, open for the past 10 months while awaiting the outcome of his ally's trial. "I congratulate you on the unanimous acquittal and am happy about your return to the Israeli government so we can continue working together for the good of the people of Israel," Netanyahu told Lieberman in a statement.

It is unclear what impact Lieberman's reinstatement to the foreign ministry will have on current peace negotiations brokered by his US counterpart, the secretary of state John Kerry. He is openly sceptical about the process and has said he believes a permanent peace deal is impossible.

Lieberman was cleared on all charges of fraud and breach of trust in a unanimous ruling by three judges. He had been accused of promoting a former diplomat who had passed him information about a criminal investigation into Lieberman's business dealings by the authorities in Belarus.

"This chapter is now behind me. I am now focusing on the challenges ahead," he told reporters outside the Jerusalem courthouse. He added that he had been persecuted by overzealous prosecutors for 17 years. The prosecution said it would study the ruling before deciding whether to appeal.

Lieberman stepped down as foreign minister after being indicted last December, but retained the chairmanship of the powerful foreign affairs and defence committee in the Israeli parliament, the Knesset.

His acquittal will disappoint a handful of senior politicians who were jockeying for the post of foreign minister in the event of Lieberman's conviction and withdrawal from the political scene.

The hardline nationalist politician is likely to return to frontline politics with renewed vigour. The policies of Yisrael Beiteinu, the party he founded in 1999, include drawing Israel's future borders to incorporate areas populated by Arab citizens of Israel into a new Palestinian state. It views Israel's Arab population – 20% of the total – as the "enemy within".

His party has called for the "execution" of Arab MPs who met leaders of Hamas, and proposed an oath of loyalty from Israeli citizens without which they would not receive the right to vote or access social services. A year ago he said that "when push comes to shove, many key leaders would be willing to sacrifice Israel without batting an eyelid in order to appease the radical Islamist militants and ensure quiet for themselves".

His outspoken views and abrasive personality failed to find a warm welcome with many western diplomats. Kerry's predecessor, Hillary Clinton, reportedly avoided face-to-face meetings with Lieberman.

A former nightclub bouncer from Moldova who arrived in Israel at the age of 20, Lieberman initially built a popular political constituency among Russian immigrants, although his support has since broadened. His party won 11 places in the 120-seat Knesset in January's election.