Israeli Prime Minister-designate Benjamin Netanyahu suffered another setback on Monday in his quest for a broad governing coalition after Tzipi Livni's centrist Kadima party backed her refusal to join.

In a statement, Kadima parliament members said they "decided the conditions do not exist to continue coalition negotiations".

Livni, currently foreign minister, had already spurned a political partnership with the hawkish Netanyahu, saying he was not committed to a U.S.-sponsored vision of a Palestinian state alongside Israel.

A second round of coalition negotiations between Kadima and Netanyahu's right-wing Likud ended in disagreement on Friday and no new talks were scheduled.

President Shimon Peres asked Netanyahu on Feb. 20 to form a government after a nationalist bloc, comprised of right-wing and Jewish religious parties, won a majority of seats in parliament in an election 10 days earlier.

But a right-wing government could put Netanyahu, who clashed with the Clinton White House while prime minister from 1996 to 1999, on a collision course with the Obama administration, which has affirmed a U.S. commitment to Palestinian statehood.

Netanyahu wants contacts with the Palestinians to focus on economic and security issues rather than territory, a concept Palestinian leaders reject.

He said on Monday he had not given up his desire to lead a broad government.

"I hope these efforts will ultimately bear fruit," Netanyahu said, adding that although the law gave him until April 3 to build a ruling coalition, he hoped to complete the job sooner.

"It's important for Israel to have a strong, effective government as soon as possible," Netanyahu said, citing pressing issues such as tensions with Hamas in the Gaza Strip, Iran's nuclear programme and rising unemployment.

Defence Minister Ehud Barak, head of the centre-left Labour Party, has not ruled out joining up with Likud, although he said he was sceptical a deal could be worked out.

"I don't know if there will be more talks with Netanyahu or where they will lead," Barak told Labour legislators on Monday.