Jeremy Bowen reports: "Barak visits the grave of Rabin"

"We are one nation," Mr Barak told thousands of cheering supporters celebrating in Tel Aviv's Rabin Square.

His clear margin of victory has been welcomed worldwide as a mandate for change.

Jeremy Bowen reports: "Barak supporters hope he'll pick up where Rabin left off"

Immediately after outgoing Prime Minister Binyamin Netanyahu conceded defeat on Monday night, United States President Bill Clinton offered his "warmest congratulations" to Mr Barak by telephone.

President Clinton pledged to work "energetically for a just, lasting, and comprehensive peace that strengthens Israel's security."

Victory for peace

Western and Middle Eastern leaders alike have expressed the hope that Mr Barak's win heralds an immediate revival of the Middle East peace process.

Ehud Barak: "This is Israel's first step towards unity"

Palestinian leader Yasser Arafat said he hoped the election result would be a victory for peace. King Abdullah of Jordan also spoke of a bright future.

But Arab pleasure at the defeat of Mr Netanyahu was strongly tempered by scepticism and warnings that Mr Barak's policies remain largely unknown.

"There is no difference between Barak and Netanyahu and the best proof of that is his speech after he was elected," said a spokesman for the Lebanese Prime Minister Selim al-Hoss.

In his victory speech at his party's HQ, Mr Barak promised to fulfil his campaign pledge to pull out of the occupied southern Lebanon region "within a year".

But he added that in the coming months, Israel would be facing some of the most difficult and fateful decisions in its history.

Huge swing

With more than 95% of all votes in, the Labour leader had 56.4% of the vote against 43.4% for Mr Netanyahu, the central electoral commission said.

Final unofficial results are expected later on Tuesday.

But although most attention focused on the prime ministerial race, Israelis also voted for a new parliament, whose composition will have a vast influence over Mr Barak's ability to govern.

In the Knesset elections, Mr Barak's Labour Party and its allies - the One Israel coalition - won only 27 of 120 seats.

The BBC Jerusalem correspondent says the question now is whether Mr Barak will try to form a national unity government, which would include Likud, or stick with Labour's traditional political allies.

Strong Shas showing

The big victor in the Knesset ultra-Orthodox Sephardic Jewish movement, Shas, strengthened its seats from 10 to 17, just two seats fewer than Likud.

The party's leader, Aryeh Deri, then announced on Tuesday that he is stepping down to allow Shas to negotiate a coalition with Labour.

The move came after Labour indicated that it would not be able to work with the party if Aryeh Deri remained at its head following his recent conviction for corruption, bribery and fraud.

Jon Leyne surveys reactions to Mr Barak's election victory

Mr Deri's four year sentence has been deferred, awaiting a Supreme Court appeal.

Shas threw its weight behind Likud during the election, but has now indicated it wants to be considered for a place in a coalition government with Mr Barak's One Israel party.

Likud's showing plummeted from 32 to just 19 seats.

Bowing out

Listen to Binyamin Netanyahu's resignation speech

Mr Netanyahu called the election 17 months early when his coalition could no longer sustain the contradictions between its right-wing ideology and the peace process with the Palestinians agreed by its Labour Party predecessors.

After thanking his supporters, and saying he was proud of his accomplishments, the defeated Mr Netanyahu announced his intention to resign from the leadership of the Likud party.

He said he wanted to spend more time with his family.

During campaigning, Mr Netanyahu tried hard to paint his rival as soft on the Palestinians, notably accusing the former army chief of staff - and Israel's most decorated soldier - of being ready to cede parts of Jerusalem.

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