Israel seems to be moving to the right heading into Tuesday's national election, with polls giving former prime minister Benjamin Netanyahu and his Likud party a slight edge over Prime Minister Ehud Olmert's centrist Kadima party led by Foreign Minister Tzipi Livni.

A Likud government would throw the entire Mideast peace process into doubt and leave it at odds with the U.S. government because the party has publicly rejected the idea of a Palestinian state. The Obama administration has endorsed a two-state solution to end the decades-old Palestinian-Israeli conflict.

However, observers say Livni could still squeeze out a victory because the last opinion polls that could be published before the election showed Kadima narrowing the gap on the leading right-wing Likud.

There is a large number of undecided voters. About a quarter of Israel's 5.3 million eligible voters were undecided in the campaign's final days, polls show.

Of all the contenders for prime minister, Netanyahu seems to best channel the current mood of the nation after major battles with first Hezbollah in 2006 and more recently Hamas, with policies favouring security over chasing an elusive peace deal.

Lead narrowing?

But surveys show his party's lead has narrowed, with an edge of just two or three seats. If Kadima surpassed Likud on election day as the biggest party, President Shimon Peres would likely ask Livni to form the next government.

David Landau, who's with the editorial board of Haaretz newspaper in Jerusalem, said talks that both Israel and Hamas have been holding with Egypt are complicating matters for voters.

"There could yet be a short of ceasefire agreement between Israel and Hamas. They're not negotiating directly, but separately with Egypt, and the Egyptians are saying this morning that they're very close to a ceasefire agreement, which would also involve the opening of the borders to the Gaza Strip, the release of prisoners by Israel and the release of the Israel captured soldier who has been held for a couple of years there in the Gaza," Landau told CBC News on Sunday.

"This would have, I think, ... a dramatic effect on the public opinion in Israel in as much as there would be a sort of closure to the Gaza campaign, which ended inconclusively [after 22 days]," he said.

"What that would do to the way people vote I hesitate to predict because people might not be comfortable with the idea of releasing 1,000 convicted Hamas terrorists for the return of this one soldier, [Cpl.] Gilad Shalit," Landau said.

Shalit was captured in June 2006 in a cross-border raid.

Sporadic rocket attacks have continued against Israel since Hamas and Israel each declared unilateral ceasefires on Jan. 18. Israel has responded to the attacks with air raids on Hamas targets.

With files from the Associated Press