As someone who's long believed that the United States needs more than two parties, I voted for Ralph Nader in 2000 in hopes that the Green Party would emerge as a legitimate third party. Unfortunately, Nader turned out to be an egomaniac (witness 2004 and 2008 campaigns). I still remain hopeful that sometime in the future we will have more representation (or at least a Democratic Party that listens to the left).
Just as having only two major political parties can be too few, the recent Israeli election demonstrates that it is possible to have too many political parties. Jeffrey Goldberg writes
The Arab world doesn't have enough democracy; Israel has too much. Israel's is an insane system, which gives every lunatic fringe party disproportionate say in the running of the country, and therefore encourages radicalism.
Prior to his resignation, the corrupt prime minister, Ehud Olmert, was able to hold on to power by forming a coalition with the religious right party, Shas. After the current election, another right wing party emerged on the political scene. Marty Peretz explains:
Yisrael Beiteinu (Israel is Our Home) Party, a neo-fascist list headed by a Russian immigrant and certified gangster, Avigdor Lieberman, who is the Israeli equivalent of Jorg Haider of Austria (now dead) and Jean-Marie LePen who, with Bridgitte Bardot, is a leader of National Front in France, who once overwhelmed the country's Socialist Party.
The problem with this hurricane of parties is that even the smallest ones have leverage, even to edge themselves into the cabinet. Lieberman is already in Olmert's government, but without portfolio, which means that maybe all he gets is a chauffeur-driven limo and the right to sit in on policy gatherings. Yisrael Beiteinu will collect more votes this time, and might--just might--decide who will be asked to form the government. When Haider was seated in the Vienna government, Israel made a big fuss and, as I remember, recalled its ambassador. Lieberman is no better than Haider and no worse, except that he is a Jew which makes him more repulsive, not only personally repulsive but politically repulsive...Arab-baiting has some practitioners in the country, and especially so after Hamas' relentless targeting of Israeli civilian life, a targeting that is still going on, after the cease-fire. But Israel is not suicidal and it needs friends. Lieberman will leave it with none, and with no self-respect either.
Just as the U.S. seems unlikely to change the number of parties represented, I predict the same is true with Israel. However, with the Labor Party finishing fourth (behind Lieberman), one possible trajectory would be a gradual consolidation of the left and the right. Shmuel Rosner articulates the current political situation in Israel
The relative consensus that has been crystallizing among Israelis in recent years means that it is difficult to categorize Israel's major parties as "left" or "right." The country's political landscape consists of very large "center"--to which belong most voters of Likud, Kadima, Labor, and some voters of Lieberman's Yisrael Beiteinu--all in all, about 75 seats out of 120. The margins are now populated by a number of fairly small parties: The Arab parties (7-8 seats), the tiny "left" (Meretz, elements in the Arab-Jewish Hadash, and maybe a member or two of Labor, totaling 6-7 seats), the "right" (National Union, some voters of Yisrael Beiteinu, and some Likud voters, adding up to 15 seats), and the "religious" parties (Shas and United Torah Judaism, with their 15 seats).
This large center rules, but can't quite decide which party it wants to represent it. In the 2006 election, the newly created Kadima stole centrist voters from Likud to its right, leaving Likud with only 12 seats. In the 2009 cycle, Kadima stole the centrist voters from Labor to its left, leaving Labor with only 13 seats. This is not the result of ideological battle; the Israeli public is not turning rightward. Since 2006, most Israelis have remained skeptical of the peace process, but fairly committed to the idea that the occupied territories will not remain in Israel's hands permanently.
The change is driven more by the particular politicians running for office. Kadima suffered from its disgraced prime minister, Ehud Olmert. Ehud Barak mistakenly thought that the Israeli public would give him a second chance eight years after the end of his failed term as prime minister. Netanyahu mistakenly believed that he could reclaim the mantle of the articulate maverick that brought him into power in the mid-90s.
It would be foolish to make direct analogies between governments of different countries. However, it seems that the Israeli left and right are possibly shaping up to mirror the Democrats and Republicans. I see the centrist Kadima Party as the DLC wing of the Democratic Party while the Labour Party is the liberal/progressive wing. Likud is right of center as are the Republicans. One possible outcome would be for Netanyahu to form a coalition with the religious right just as the Republican Party has for the past 30 years. In addition, we see the emergence of a far right nationalist neo-fascist party in Lieberman. We have seen a similar transformation in the Republican Party. Whether it is vitriol aimed at Latino and Middle Eastern Americans or the emergence of terms such as 'Homeland Security'.