Israeli Prime Minister Benjamin Netanyahu called off plans for early elections and formed a unity government in a surprise move.
The deal, agreed at a secret meeting, means the centrist Kadima party will hook up with Mr Netanyahu's right-wing coalition, creating a wide parliamentary majority reported to be the biggest in Israeli history.
Environment Minister Gilad Erdan said the accord would help build support for potential action against Iran.
The recently elected head of Kadima, Shaul Mofaz, will be named vice premier in the new look government, officials said, adding that the accord would be formally ratified later today and presented to parliament.
As deputy prime minister in a former Kadima-headed government in 2008, Mr Mofaz was among the first Israeli officials to publicly moot the possibility of an attack on Iran.
Israeli officials have said the next year will be crucial in seeing whether Iran is willing to back down in the face of widespread international condemnation and curb its nuclear plans.
Iran has repeatedly denied working on nuclear weapons, saying its programme is designed for power generation.
The next national election is not due until October 2013 but in a surprise move, Mr Netanyahu pushed this month for an early poll after divisions emerged in his coalition over a new military conscription law.
Parliament was preparing for a final vote to dissolve itself and clear the decks for a 4 September ballot while the backroom talks with Kadima were under way.
The accord drew swift condemnation from the centre-left Labour party, which had been touted in opinion polls to be on course for a resurgence at the expense of Kadima.
Kadima, with 28 seats, will add significant weight to the coalition, but it remains uncertain how it will get along with religious and ultra-right parties also in the cabinet.
Inter-government relations are likely to be tested swiftly over the issue of settlement building after the high court ordered the government yesterday to demolish five apartment buildings in a Jewish settlement in the occupied West Bank, sending consternation through the ranks of Netanyahu's party.
Many of his supporters want him to push through legislation to legalise places, such as the Ulpana apartments, which a court has ruled were built on privately owned Palestinian land.