JERUSALEM (AP) — Israeli Prime Minister Benjamin Netanyahu reached an agreement Thursday to form a new coalition government that is expected to try to curb years of preferential treatment for the ultra-Orthodox minority and may push for restarting peace efforts with Palestinians.

The new coalition, agreed after weeks of deadlock, will be the first in a decade, and one of the few in Israeli history, to exclude ultra-Orthodox Jewish parties.

It includes two new rising stars in Israeli politics and is well positioned to end a controversial system of draft exemptions and generous welfare subsidies granted to ultra-Orthodox seminary students.

Significant progress on the peace front could be more difficult, given bitter disagreements among the coalition members as well as deep differences with the Palestinians.

Nonetheless, Netanyahu’s senior partner, the centrist Yesh Atid party, is vowing to at least make an effort to restart negotiations. The peace process remained frozen throughout Netanyahu’s previous four-year term, when his right-wing party partnered with other hard-line and ultra-Orthodox factions.

"We have to begin talks with the Palestinians immediately. We need to sit at the negotiation table. We haven’t sat there for four years," said Yael German of Yesh Atid, who is expected to serve as the new Health Minister. "Let’s sit and proceed toward a peace agreement. It is essential," she told Army Radio.

Netanyahu’s Likud-Yisrael Beitenu faction wrapped up weeks of coalition negotiations with Yesh Atid and the Jewish Home, a party aligned with West Bank settlers, overnight.

The deal was expected to be signed later in the day, and the new government should be sworn on Monday, just two days before President Barack Obama is scheduled to arrive.

Although Netanyahu’s bloc emerged as the biggest faction in the Jan. 22 election with 31 seats, he struggled to form a coalition with the necessary 61-seat majority of 120 seats in parliament. His new coalition is expected to control a 68-seat majority.

The negotiations stalled over several thorny issues, including the division of key Cabinet portfolios and plans to reform the draft.

Both Yesh Atid and Jewish Home campaigned on a platform calling for an end to the contentious system, which has allowed the ultra-Orthodox to evade compulsory army service and collect welfare while the majority of Israelis serve in the military and pay taxes.

Netanyahu had courted ultra-Orthodox parties, who have been his traditional coalition partners. But with a Saturday deadline looming, Yesh Atid leader Yair Lapid and Jewish Home’s leader, Naftali Bennett, forced him to leave the religious parties out of the coalition.

In recent decades, ultra-Orthodox parties have used their kingmaker status to secure budgets for their minority religious schools and seminaries.

Tens of thousands of young ultra-Orthodox males are granted exemptions from military service in order to devote their lives, theoretically at least, to religious study. The benefits have sparked animosity among the wider Israeli public.

Lapid, who leads the second-largest party in parliament with 19 seats, is set to serve as the new finance minister, a position with great influence over the budget. His party will also control the Education Ministry.

Jewish Home will control the housing and trade ministries.

Netanyahu’s bloc will retain control of the powerful defense and interior ministries, giving him the final say in military matters and over immigration policy.

Both Bennett and Lapid formed a close alliance during the coalition negotiations, with near identical positions on the need to curb ultra-Orthodox power and the high cost of living.

Social issues weighed heavy in the election and campaign promises to improve lives for the middle class benefited both Lapid and Bennett.

Hundreds of thousands of Israelis took to the streets in the summer of 2011 to demonstrate against the gaps between rich and poor, low wages and skyrocketing housing prices.

But the parties take far different approaches to peacemaking with the Palestinians. Lapid has vowed to make a serious effort to reach peace. Yet his campaign made little mention of the issue, focusing heavily on his social and economic agenda. Critics have questioned his commitment.

Bennett, meanwhile, is a former leader of the West Bank settlement movement and opposes any concessions to the Palestinians. He has even called for Israel to annex large chunks of the West Bank, the heartland of any future Palestinian state.

His nationalistic party supports building settlements citing biblical and historic reasons, and in control of the Housing Ministry, will have the budgets to promote new settlement construction.

Despite these disagreements, there could be reason for optimism.

After presiding over four years of deadlock and suffering international isolation over the issue, Netanyahu has signaled he is eager to restart negotiations with the Palestinians under his new government.

He also has appointed Tzipi Livni, a former foreign minister who now leads a small dovish party, to serve as his chief negotiator. Livni has good working relations with the Palestinians.

Yet Netanyahu — who has been prime minister for 7 years in two previous terms — has given no indication about whether he is prepared to make significant concessions to the Palestinians.

The Palestinians demand all of the West Bank, east Jerusalem and Gaza Strip, areas captured by Israel in the 1967 Mideast war, for a future state. They have demanded a freeze in settlement construction and a commitment to make Israel’s 1967 lines the basis for a future border.

Saeb Erekat, the chief Palestinian negotiator, said the Palestinians would have "no problem" talking to Lapid or Livni.

"But if we want to negotiate with the Israelis, the government should accept the two-state solution based on the 1967 borders and implement its obligations like the settlement freeze."

The Obama visit could provide an opportunity to search for a new formula for negotiations. Obama will be meeting separately with both sides while he is in the region. But he has already said he is not planning a new peace initiative.

Netanyahu struggled to form a coalition, and required an extra two-week extension to wrap up the deal. Had he not formed a coalition by Saturday, the country could have been forced to hold a new election.

Netanyahu is likely to face many disgruntled members in his own Likud Party, which was forced to give up key Cabinet posts to appease Lapid.

Zeev Elkin, a Likud lawmaker, accused Lapid of "extortion."

"There is no other expression to describe it," he told Israel Radio.

Arieh Deri, leader of the ultra-Orthodox Shas party, told Army radio that he will join a fighting opposition.

"Our first mission is to topple this government," he said.