TEL AVIV (AFP) - Last-ditch efforts to form a broad-based Israeli coalition failed on Friday, paving the way for a rightist government and fuelling concerns about prospects for peace with the Palestinians. Hawkish premier-designate Benjamin Netanyahu said he had failed to persuade Foreign Minister Tzipi Livni to bring her centrist Kadima party into the coalition he is forging. "I have done everything possible to achieve unity... but to my great regret, I faced categorical rejection from Livni," the leader of the right-wing Likud party said. For her part, Livni said the talks "concluded without agreement on key issues, and we cannot be part of Netanyahu's government." "We will be a responsible opposition," she told media after the meeting in Tel Aviv, the second such talks since the February 10 elections. Livni has argued that Netanyahu, a former prime minister, would block any chance of a peace deal with the Palestinians. "Two states for two peoples is not an empty slogan," she said in reference to the US-backed concept of a viable Palestinian state living in peace alongside Israel, which is at the core of the Middle East peace talks. "It is the only way Israel can remain Jewish and fight terror," said Livni, who has played a central role in the peace talks that were relaunched at a US-sponsored conference in Nov 2007 following a seven-year hiatus. Livni wanted Netanyahu to commit to the two-state principle. But the Maariv newspaper pointed out that the Likud leader knows all too well that "if he comes out with such a declaration at this time, his natural partners on the right will grumble, mutter something about betrayal and leave." "Before and after the elections I promised to act for a unity government and I was willing to make important concessions," Netanyahu said after his talks with Livni, adding that he had been willing to give Kadima the foreign affairs, defence and finance portfolios. Gideon Saar, who heads Likud's coalition negotiations team, insisted Livni was "torpedoing unity out of personal motives." Likud negotiators were continuing discussions with far-right and religious parties that are likely to become their coalition partners. With 27 of parliament's 120 seats, Likud actually won one seat less than Kadima, but Netanyahu was tasked with forming the next cabinet as he stands a better chance of cobbling together a coalition by an early April deadline. The failure of his talks with Livni is bound to fuel concern among Palestinians and the international community. With a right-wing coalition now a strong probability, there are fears it would torpedo a ME peace process. While he was prime minister Netanyahu agreed to hand over control of parts of the West Bank city of Hebron to the Palestinians, but he also put the brakes on the peace process, in part by authorising an expansion of Jewish settlements in the territory.