Benjamin Netanyahu and Avigdor Lieberman are to contest nest year's Israeli election on the same ticket.
The Prime Minister, who is from the Likud Party, announced his decision to join forces with Yisrael Beitenu's Mr Lieberman on Thursday evening. "We are ahead of difficult challenges and it is time to unite powers for the state of Israel," he said. "One ticket will strengthen the government, it will strengthen the prime minister, and it will strengthen the country."
The two parties are currently in coalition with each other, with Mr Lieberman serving as Foreign Minister.
But the deal to stand on a joint list – Israel votes on a party list system – suggests that Mr Netanyahu is moving to the right of the political spectrum, although it could hand them a rare majority of more than 60 Knesset seats. As Foreign Minister, Mr Lieberman, who emigrated to Israel from the Soviet Union in 1978, has been opposed to concessions on settlements and one of the most strident critics of international caution over Iran's nuclear ambitions.
Mr Lieberman, who is 54, said of the decision to run together: "The joining of our forces presents a combination… of strength and unity. This is what the residents of Israel are expecting today."
He called the union a "true alternative, and an opportunity for the citizens to stabilise leadership and government."
Leaders of the political left in Israel said the deal would create an "extremist" party and had been forged out of desperation and panic. "Tonight Likud disappeared and instead there's an extreme Lieberman party," Shelly Yachimovich, leader of the Labour Party said.
"This is a wake-up call for the entire centre to unite and put ego aside," added Kadima leader Shaul Mofaz, who took over from Tzipi Livni last March.
The announcement comes amid uncertainty of whether former Prime Minister Ehud Olmert will be able to mount a political comeback, despite having been convicted on charges of breach of public trust. Israeli journalist Yair Lapid is also set to run on a centrist ticket.
Israel will go to the polls in January.