Prime Minister Benjamin Netanyahu announced on Monday that he cannot establishment a new Israeli government and that he is returning the mandate to form a coalition to President Reuven Rivlin, paving the way for a different candidate to try to create a government for the first time in over a decade.

The premier made the announcement two days before his final deadline to present a coalition. Rivlin stated in response that he intends to tap the prime minister's rival and Kahol Lavan leader Benny Gantz. He is expected to formally announce his decision within 72 hours, by Thursday evening.

Gantz, a former Israeli army chief of staff, will have 28 days to try to form a coalition. If the Gantz-led coalition talks also fail, any lawmaker backed by a majority of at least 61 Knesset members would be the next one to have a go at forming a coalition.

If no other lawmaker will be tapped by Knesset members within 21 days, or if they are unable to form a government, Israel will find itself heading for a third election within a year.

Netanyahu broke the news on social media. In a video published on his official Facebook page, the prime minister said: "Ever since receiving the mandate [to form a government] I have worked relentlessly … to establish a broad national unity government. This is what the people want."

He argued that his efforts to "bring Gantz to the negotiation table … and prevent another election" have failed, adding that the Kahol Lavan leader "refused time after time."

Responding to Netanyahu's announcement, Gantz wrote on Twitter: "It's time for Kahol Lavan."

The party's co-leader Yair Lapid said that "Bibi failed once more. It's a serial thing." In an official statement, his party said: "The time for spins is over, now is the time for actions. Kahol Lavan is determined to form a liberal national unity government headed by Benny Gantz, for which the people voted last month."

Gantz's party received 33 out of 120 Knesset seats in Israel's September 17 election, followed closely by Netanyahu's Likud with 32, both far from securing a majority in parliament.

Netanyahu has the backing of ultra-Orthodox parties Shas (eight seats) and United Torah Judaism (seven seats), as well as the far-right alliance Yamina (also seven seats).

In consultations with Rivlin ahead of nominating Netanyahu, the Arab alliance Joint List, which won 13 Knesset seats, backed Gantz in a rare move for Israeli Arab parties. Labor-Gesher, with six Knesset seats, and the Democratic Union, with five seats, also recommended Gantz to Rivlin.

Yisrael Beiteinu, led by Avigdor Lieberman, who received eight Knesset seats, backed none of the candidates for prime minister.

'Fix the damage'

Gantz and his potential coalition partners "are only talking about unity," Netanyahu said in his video message. "In effect, they're doing the exact opposite, encouraging sectarianism" by refusing to accept a government with ultra-Orthodox parties, he added.

The prime minister then argued that Gantz has worked in full coordination with Joint List lawmakers, "who glorify terrorism [and] deny Israel's existence," to form "a minority left-wing government."

If such a government comes into being, Netanyahu said, "I will head to the opposition and work with my friends to take it down."

Joint List Chairman Ayman Odeh said on Twitter: "The magician has long run out of tricks and he's pulling the incitement card once more. I hope this would be the last time Netanyahu incitesw against the Arab citizens as a prime minister."

Kahol Lavan lawmaker Ofer Shelah said Monday that Netanyahu "wants an election, it's clear," calling on other parties to "join us in a government that will fix the damage he's done."

He added that Netanyahu has wasted four weeks in order to continue serving as prime minister, while "fabricating stories about security and economics."

Labor Chairman Amir Peretz said "Tonight Netanyahu ended his role as a prime minister, but it is his failure that has become Israeli citizens' new hope."

The Democratic Union's Nitzan Horowitz said his party "aspired to be part of the government [Gantz] forms... It's about time."

Rotation still an option

Gantz now intends to hold consultations with all party leaders, including Netanyahu, in an attempt to form a broad unity government.

Rotation for the prime minister's position is not off the table, but Kahol Lavan insists that Gantz would go first, before any Likud candidate, and that no lawmaker with charges against him be considered.

Netanyahu is facing potential charges of bribery, fraud and breach of trust in three corruption cases. Attorney General Avichai Mendelblit is soon expected to announce whether the prime minister will be charged following his early October pre-indictment hearing.

Kahol Lavan is expected to present several preconditions for joining its government, including backing public transport on Shabbat and revoking legislation forcing businesses to close on Saturdays, to which ultra-Orthodox parties object.

On Thursday, Netanyahu published an outline for a broad national unity government, in his final attempt to form a coalition, which was quickly rejected by Gantz.

The outline, which Netanyahu presented to Gantz by phone, is based on the guidelines set forward by President Rivlin, but ignores Kahol Lavan's demand to break up the right-wing bloc as a precondition to coalition talks. The plan also makes no mention of a rotation of the premiership or an arrangement for such a rotation.