Israeli news outlets reported on Thursday that a breakthrough has been made in talks to build a new government, following the January 22 election results.

The reports cited senior members of incumbent Prime Minister Benjamin Netanyahu's Likud party who expressed certainty that a coalition agreement would be reached next week with two parties, Yesh Atid and Habayit Hayeudi, the second and fourth largest parties, respectively.

Both parties have 31 seats together in the Knesset (parliament) out of 120. In order to build a coalition, Netanyahu needs at least 60 seats. His Likud-Beytenu party won 31 seats in the January elections.

This came as a surprise after both parties ran a tough bargain with Netanyahu during the coalition talks, presenting a united front of demands, mainly of an equal burden of the military service, to the ire of another possible political partner, the ultra-Orthodox, who oppose the conscription of Haredi youth.

According to a report on the Ma'ariv daily, Netanyahu and his negotiations team assured both parties' members that orthodox seminary students who would not join the service would not be given stipends as was custom up until now.

The Likud officials added that both sides also share understandings in other topics on the agenda like the upcoming 2013-14 budget, the peace talks and the size of the upcoming cabinet.

The meaning of this apparent agreement is that the ultra- Orthodox, who constituted a part of nearly all major governments in the past several decades, will find themselves out of the coalition.

"Netanyahu has no choice," one source within the Likud told the Ha'aretz daily. "He would have preferred to leave the Haredim inside but the simple math shows he doesn't have enough support without Bennet and Lapid," referring to the leaders of Habayit Hayeudi and Yesh Atid.

"Netanyahu understands he can't break the alliance built between these two, as well as the significance of a coalition without the Haredim," the source added.

However, there are still differences to be smoothed out between both sides. For instance, both Yesh Atid and Habayit Hayeudi oppose the coalition agreement between Tzipi Livni's center party and Netanyahu reached last week.

Specifically, both parties' leaders demand to revoke the nomination of Livni to head the peace talks with the Palestinians.

The Likud-Beiteinu's negotiations team is due to meet Yesh Atid 's negotiators on Thursday. According to the reports, the Yesh Atid representatives will voice their objections to Livni's nomination.

However, Avigdor Lieberman, head of Yisrael Beytenu and Netanyahu's No. 2, said the coalition agreement with Livni was signed and will be honored, the Jerusalem Post reported.

Netanyahu's team made progress in talks with Bennet and Lapid, after not succeeding in courting the center-left Labor party.

If Netanyahu was able to convince Shelly Yachimovich, the party 's leader, to join his government, he would be able to add the Haredim to the government and leave Yesh Atid and Habayit Hayeudi out of the picture.

However on Wednesday, Labor chief Yachimocih said there was a " massive gap" in the positions held by both parties, specifically on socioeconomic issues.

On Saturday, Netanyahu will go to President Shimon Peres and ask for an extension of 14 days to build a government in order to finish building the new government.