In his first stage he tried to recreate the comfortably stable constellation he led in his last term, with the ultra-Orthodox parties to his right, a compliant group of centrists to his left and himself astride middle, unchallenged. His problem was that with his bloc drastically reduced (Likud and Yisrael Beiteinu dropped from 42 seats between them to a combined 31 in their merged bloc) and the ultra-Orthodox stable at 18, he needed a much larger centrist group to give him the needed 61-seat majority in the 120-member Knesset. Unfortunately, the two centrist groups big enough to put him over, Shelly Yachimovich’s Labor and Yair Lapid’s Yesh Atid, both refused to sign on. Yachimovich said she rejected Netanyahu’s socio-economic views. Lapid refused to sit with the ultra-Orthodox. Neither one would budge.

Two weeks into his three-week initial coalition-building deadline, Netanyahu swallowed his pride and sought to recruit a middle-sized faction to his right, Naftali Bennett’s settler-backed Jewish Home. This despite his longstanding personal feud with Bennett. But Lapid had closed off that option by signing a pact with Bennett to go in or stay out as a team. Netanyahu spent the rest of the week trying vainly to separate the duo while angrily railing against their “boycott” of the ultra-Orthodox. “Jews don’t boycott Jews” and all that.

On March 2, after hitting his initial three-week deadline with no coalition, Netanyahu received the constitutional two-week extension from President Shimon Peres. Now he entered the bargaining stage.

Kubler-Ross spoke of Stage 3 as an effort by the victim to make some sort of deal in vain hope of staving off inevitable doom. In Netanyahu’s case, the deal involved accepting that he had to abandon his longtime ultra-Orthodox allies and close a deal with Lapid and Bennett, despite bad blood with both of them. His assumption was that this would leave him in command.

Lapid’s opening demand was the foreign affairs ministry. As head of the second-largest party in the Knesset, he felt entitled to claim one of the senior ministries, meaning either foreign affairs, defense or treasury. In Lapid’s case, with an eye to capturing the top job some day, he felt a need to build a national security resume, which ruled out treasury. And since defense requires an expertise he lacks, he chose foreign affairs.

Netanyahu deflected that demand with what he thought was a convincing defense—he promised to keep the foreign ministry open for the likely return of Avigdor Lieberman, who is currently on trial for bribery. Instead he offered Lapid the treasury. He assumed Lapid could not say no.

He assumed wrong. Lapid is intent on a national security position. He had slotted the treasury post for his junior partner, Bennett. From Lapid’s viewpoint, treasury is a political graveyard whose occupant becomes the visible face of budget cuts and tax hikes. For Bennett, by contrast, it’s a plum perch that lets him keep funds flowing to the settlements at a time of mounting international pressure to cut them off.

Netanyahu fully intends to stand by his promise to Lieberman (unless holding the ministry in reserve is ruled illegal following a lawsuit by the good-government group Ometz). This isn’t merely about loyalty. Lieberman’s Yisrael Beiteinu party joined Netanyahu’s Likud in an electoral bloc last fall, but they retained separate party organizations. Lieberman is free to take his 11 lawmakers and walk out, as he’s noted publicly since the election. That would leave Netanyahu with a 20-member Knesset caucus, just one more than Lapid’s 19.

But this threat highlights Netanyahu’s larger weakness in dealing with Lapid. The alliance between Lapid’s caucus and Bennett’s forms a parliamentary bloc of 31 seats, the same size as Netanyahu’s bloc with Lieberman. By forming his alliance with Bennett, Lapid has effectively made himself Netanyahu’s full equal, head of a bloc of 31 seats. Netanyahu, despite all his squirming, is no longer the boss. And in a coalition built around two equal blocs of equal size, the four senior portfolios must be shared equally, two each. That means prime ministry and defense for Netanyahu, and foreign affairs and treasury for Lapid.

Lawmakers in Lapid’s caucus point to this strategic power advantage as a critical motive behind Lapid’s dalliance with Bennett, and wave off suggestions that they have entered a long-term alliance with the hawkish Jewish Home. The alliance, several Yesh Atid deputies told me this week, will survive long enough to let them enter a coalition on a firm footing and initiate their shared domestic goals, chiefly ultra-Orthodox integration. “Once diplomatic matters return to the agenda, you’ll see that Yair is with us,” one outspoken dove said.

Netanyahu presumably knows all this, but he has few options. He has reportedly tried and failed to convince Lieberman to take the defense ministry. Likud deputy Moshe Yaalon, a former military chief of staff, would dearly like defense for himself, but that would leave Lieberman out in the cold, inviting a Likud-Beiteinu breakup and dashing Netanyahu’s prospects.

It is conceivable that Netanyahu could fail to square the circle and end up hitting his March 16 deadline with no coalition. If that happens, President Peres has the option of either calling new elections or asking another current Knesset member to try and form a coalition. Most analyses conclude there’s no possible constellation of parties that could form a new government without Netanyahu at the helm, if only because no other major party head has the standing and experience to lead the country through its current crises.

But Haaretz political reporter Yossi Verter, in a March 1 column, suggested one scenario that might not be completely far-fetched. Peres could ask Shaul Mofaz, who heads the tiny, two-man Kadima caucus, to lead an emergency government that includes Lapid, Yachimovich, Bennett, Tzipi Livni and Zahava Gal-On of Meretz. Mofaz is a charisma-challenged politician who managed to lead Kadima from 28 seats last fall into near oblivion today, but he’s widely respected as a statesman, a former defense minister and former army chief whose qualifications for the top job are unimpeachable.

In Verter’s scenario, a Mofaz government would serve for two years, long enough to enact serious electoral reform and plan for integration of the ultra-Orthodox into society. With a bare 60 seats among its six partners, though, even those goals might be too ambitious. It could be that the divisions in the Knesset are simply reflections of the very real divisions in Israeli society, and no amount of procedural tinkering will make them magically disappear.