Yes this is a very narrow win with Kadima winning 28 seats and Likud winning 27 out of a possible 120. It seems it is going to be hard for Kadima to form a coalition government but this does not mean it cannot be done.
The results can be followed as the last 2% come in here
The reason it is going to be hard for Kadima to create a coalition is because Avigdor Lieberman's Yisrael Beitenu party is expected to get 14 seats with Labor only getting 13 and the Shas party (right wing leaning and openly saying they want Likud to win) with 11 seats.
So looking at just the top 5 vote getting parties the right wing block already has 53 seats with Likud, Yisrael Beitenu, and Shas.
If you had in the right wing parties of United Torah Judaism, Jewish Home and National Union who are going to get 11 seats this gives the Likud a narrow majority of 64 of the 120 seats.
If we do the simple math this mean that Kadima's coalition only has 56 seats.
HOWEVER... Shimon Peres the current President of Israel and former Labor party leader and PM, chooses who is allowed to form a unity government. With Kadima receiving the most votes it is hard to see how he cannot give Kadima the first crack at this.
Some of the smaller parties like National Union and United Torah have been persuaded to join government before if they are given the right cabinet post like Education. Livni just has to convince United Torah to come over with its projected 5 seats and Kadima will have the slightest of majorities.
So in the end we do not know exactly what is going to happen, but I figured I would report the final numbers.