Rather than facing the electorate in September, Netanyahu and his hardline rightwing government are expected to comfortably see out the remaining 18 months of his term of office. Not only that, but he will now have the backing of more than three-quarters of the 120-seat Israeli parliament, leading one commentator to crown him the "King of Israel."
The announcement may have taken Israelis by surprise but it fully accorded with the logic of an increasingly dysfunctional Israeli political culture.
Shaul Mofaz, who a few weeks ago ousted Tzipi Livni as head of the centre-right Kadima party, had been vitriolic in denouncing Netanyahu. He called the prime minister a "liar" and went to the trouble of posting on his Facebook page a pledge that he would never make a deal with this "weak, incompetent and deaf government."
He also boasted in a recent interview that he would topple Netanyahu by leading the revival of mass social protests expected in the summer.
Last year hundreds of thousands took to the streets to demand an end to the rocketing cost of living, much of it caused by business cartels that were empowered by Netanyahu and his Likud party in privatisation programs years ago.
But the reality was that Mofaz, a hawkish former army chief of staff who is seen as a lacklustre, power-hungry and slippery politician, had no credibility with either the demonstrators or the wider electorate.
Kadima, which has never strayed far from its ideological roots in the Likud, from which it split several years ago, is currently the largest faction in the parliament. But polls suggested Mofaz would lead it to electoral oblivion.
The deal will win him a temporary reprieve, with a seat in the inner circle alongside Netanyahu and Ehud Barak, the long-time defence minister whose own party was expected to vanish if the September election had taken place.
Kadima will get no ministries but Mofaz will have a say in the biggest issues facing Israel: its dealings with Iran and the Palestinians.
This may be good for Mofaz personally but most likely his act of supreme duplicity will finish off Kadima as an independent party. The next year and a half may see him try to return to the Likud fold.
Netanyahu, meanwhile, has created a national unity government that more precisely reflects the majority mood: an unalloyed, aggressive and xenophobic rightwing consensus.
There was little need for Netanyahu to bring Kadima into the coalition. He was racing ahead in the polls, his popularity outstripping that of all the other major party leaders combined. And he had won this scale of support even as senior security officials, including the former heads of the Mossad and the Shin Bet, questioned his rationality on the issue of whether to attack Iran.
But there are advantages to Netanyahu in postponing an election he was expected to win.
Not least, it gives him time to entrench moves towards authoritarianism. Netanyahu has been behind a series of measures to weaken the media, human rights groups, and the courts. At the moment his government is defying a series of Supreme Court rulings to dismantle several small Jewish settlements on Palestinian land that are illegal even under Israeli law.
An uninterrupted 18 months will allow him to further undermine these rival centers of power. One of the promises he and Mofaz made yesterday was to overhaul the system of government. Netanyahu now has enough MPs to overturn even the most sacrosanct of Israel's Basic Laws.
In addition, the new coalition will face an all but non-existent parliamentary opposition: a shrivelled centre-left of the Labor and Meretz parties, with only a handful of seats; a few noisy ultra-nationalists who would be more trouble in government than Netanyahu needs; and the Arab parties, who are reviled by Jewish public and politicians alike.
Labor's new leader, Shelly Yacimovich, was expected to partially revive her party's fortunes on the back of the social protests and might have been joined in a potentially confrontational opposition by a new centrist party, headed by TV news anchor and heart-throb Yair Lapid. Now both are relegated to the political margins.
Avigdor Lieberman, the foreign minister and leader of the far-right Yisrael Beiteinu party, whom Netanyahu fears most as a potential challenger, has also been defanged. His current, pivotal role in the coalition will be savagely diminished by the bulky presence of Kadima.
Another bonus for Netayahu is that he is now better situated to see off the potentially dangerous early days of a Barack Obama second term, if the US president is re-elected in November. This is when some observers believed the US president, serially humiliated by Netanyahu over the settlements and the peace process, might seek his revenge.
But should Obama choose a fight on the Palestinian issue, he will be facing a prime minister whose position in Israel is unassailable.
What does all this mean for Iran and the Palestinians?
Regarding the former, several commentators and some of his own ministers have argued that Netanyahu now has a free hand to launch a go-it-alone attack on Iran and destroy what he claims is a nuclear weapons programme that might one day rival Israel's own secret arsenal.
More likely, the expanded coalition will make little difference to Israeli calculations over Iran, one way or the other. Mofaz, like most of the security establishment, opposes an attack unless it is headed by the US.
But Netanyahu will doubtless exploit his strengthened position to up the rhetoric against Tehran and add to the pressure for intensified action from the US and Europe.
As for the Palestinians, it can mean only more of the same -- or worse. Mofaz, who tried to distinguish himself in opposition by proposing a miserly peace plan that would see the Palestinians holed up in a series of enclaves, lacks the political weight to deflect Netanyahu from his even more intransigent approach.
But at least for Netanyahu, the Kadima leader will cut a more presentable figure in Washington than Lieberman as an advocate for Israel's hard line.
The Israeli prime minister's claim yesterday that he was about to unveil a "responsible peace process" should be taken no more seriously than his professed commitment, abandoned the same day, to submit himself to the judgment of the Israeli electorate.
The one small sliver of light is that what remains of the Israeli left, so long in hibernation or denial, may finally be stirred into a response by the antics of this ugly ruling cabal.
Last year's social protests remained, in a great Israeli tradition, studiously "apolitical," unlike their counterparts, the Occupy movements, in the United States and Europe.
The demonstrators refused to draw any connection between the rapidly polarised economic situation -- the gap between Israel's rich and poor is now as bad as in the US -- and either the right's self-serving neoliberal policies or the occupation that has channelled endless resources to the settlers and the security establishment.
This summer Israel may finally get its own Occupy movement -- one prepared to tackle the real occupation.