With 86% of votes from the general election counted, Mr Netanyahu’s bloc is set to win 65 out of 120 seats. (Read More Here).
“We are close to a big victory,” he told jubilant supporters in Jerusalem.
However, he will be dependent on the support of the ultra-nationalist Religious Zionism party.
Its leaders, Itamar Ben-Gvir and Bezalel Smotrich, have gained notoriety for using anti-Arab rhetoric and advocating the deportation of “disloyal” politicians or civilians.
Mr Ben-Gvir was a follower of the late, explicitly racist, ultra-nationalist Meir Kahane, whose organisation was banned in Israel and designated as a terrorist group by the United States. Mr Ben-Gvir himself has been convicted of incitement to racism and supporting a terrorist organisation.
Last month, Mr Ben-Gvir hit the headlines when he was filmed pulling out a gun after being targeted with a stone thrown by Palestinians while visiting the flashpoint predominantly Arab Sheikh Jarrah district of occupied East Jerusalem, and calling for police to shoot the culprits.
Speaking to reporters on Wednesday, Mr Ben-Gvir promised to “work for all of Israel, even those who hate me”.
After exit polls were published on Tuesday night, supporters of Religious Zionism gathered in Sheikh Jarrah, shouting taunts and throwing stones towards Palestinian areas.
Mr Netanyahu, accompanied by his wife Sara, appeared at his Likud party’s election night venue at 03:00 local time (01:00 GMT) on Wednesday to thunderous applause.
“We have won a huge vote of confidence from the people of Israel,” he told his cheering supporters.
Hours earlier, when the exit polls predicted that Mr Netanyahu’s bloc would win 61 or 62 seats, the room had been a scene of celebration as people jumped up and down, waved flags and chanted his nickname, Bibi. One man repeatedly blew a shofar, or ram’s horn, a ritual instrument used by some Jewish people at times of special significance.
At his party’s camp in Tel Aviv however, current Prime Minister Yair Lapid told his supporters that “nothing” was yet decided and his centre-left Yesh Atid party would wait for the final results.
Lapid, a former TV anchor, on Tuesday urged the electorate to cast their ballot.
“Go and vote today for the future of our children, for the future of our country. Vote well!” he said at a Tel Aviv polling station.
In a political system where a shift in just one of the 120 Knesset seats up for grabs could cement a ruling coalition — or lead to further deadlock and possible new elections — the outcome remains uncertain once more.
At a polling station in Tel Aviv, left-wing voter Shai Barkan lamented the “terrible” impasse of recent years.
“I’m doing my civic duty, and I hope that these elections will be the last for the next four years,” the 66-year-old designer told AFP.
Netanyahu, who is on trial for corruption and breach of trust, has addressed party faithful from a bulletproof campaign bus, seeking to convince them that only he can keep the country safe.
“I ask you to go to all of your friends, all of your neighbours, all of your relatives, and tell them that nobody stays home,” the 73-year-old known as Bibi urged supporters at a recent rally.
Whoever is tapped to form a government will need the backing of multiple smaller parties to stand a chance of clinching the 61 seats necessary for a majority.
The extreme-right leader Itamar Ben-Gvir may be key to helping Netanyahu return to the premiership, as his Religious Zionism bloc has gained momentum in recent weeks and could come third in the election.
Ben-Gvir, who has faced dozens of charges of hate speech against Arabs, vowed Tuesday there will be a “full right-wing government” led by Netanyahu.
One of Ben-Gvir’s supporters, 40-year-old Jonathan Kern, said the politician “focuses on the things important to me” such as his Jewish identity and security.
“(But) I think that nothing will change, it’s going to be the same dead heat and the most intelligent will form a government,” Kern said in Tel Aviv.
The election is being held against a backdrop of soaring violence across Israeli-annexed east Jerusalem and the occupied West Bank.
At least 29 Palestinians and three Israelis were killed across the two territories in October, according to an AFP tally.
The Israeli military said it would shut checkpoints leading to the West Bank and close the crossing with the blockaded Gaza Strip throughout election day.
While many candidates have cited security as a concern, none have campaigned on a platform of reviving moribund peace talks with the Palestinians.
