Coalition talks between Likud-Beytenu, Yesh Atid and Jewish Home failed to resolve several relatively minor disagreements Tuesday, and will continue Wednesday, but the sides did reportedly agree to a potentially dramatic electoral reform: raising the threshold for Knesset representation from 2% to 4%.

According to a report on Channel 2 News late Tuesday, the reform was advocated by Yesh Atid’s Yair Lapid, and accepted by the Likud-Beytenu negotiators. If the reform does indeed become law in the next parliament, it could significantly reduce the number of parties winning seats in the Knesset in the future.

In the January 22 elections, 12 parties cleared the 2% threshold — garnering over 2% of the votes cast nationwide. Had the threshold been set at 4%, however, only 8 parties would have made it into the Knesset. All three of the Israeli Arab parties (Hadash, Balad and the United Arab List), along with Kadima, would have fallen short. (Even Meretz and Hatnua each got less than 5% of the national vote.) The splintered Arab sector, if the reform goes through, would likely have to consolidate into one or two parties, rather than the current three, to be certain to make it in the Knesset next time, and the numerous minor parties — 34 parties ran in all in January — would have still more remote a chance of winning election.

Unnamed Likud members who spoke to Maariv said the decision to push for raising the vote threshold was reached long ago and called its mention in the press “political spin.”

“[Prime Minister Benjamin] Netanyahu and [Yisrael Beytenu leader Avigdor] Liberman had readily agreed to the measure, since they had tested the idea in the previous Knesset,” the Likud source told the paper.

Unresolved disagreements between the potential coalition partners, meanwhile, include the ongoing deadlock over who will be appointed minister of education, an argument over which party will control the powerful Knesset Finance Committee, and the refusal of Tzipi Livni’s Hatnua party to reduce their two promised cabinet seats to one.

Likud is determined to see party member and current Education Minister Gideon Sa’ar maintain his position, while Yesh Atid would like the post to go to party No. 2, MK Rabbi Shai Piron. Lapid said no on Monday night to a suggestion that the job “rotate” between the two.

Talks were set to resume on Wednesday, with little breathing space now left to reach an agreement in time for the government to be sworn in this week. If critical breakthroughs are not made Wednesday, Netanyahu will be getting perilously close to the Saturday night conclusion of his allocated period for forming a coalition. Nonetheless, sources in all the relevant parties were still indicating Tuesday night that a Netanyahu-led coalition would be formed; it would simply have to be sworn in early next week — already an extremely hectic week given President Barack Obama’s scheduled arrival in Israel next Wednesday, March 20.

Likud-Beytenu, Yesh Atid and Jewish Home agreed on Monday to shrink the Cabinet to 20 ministers plus the prime minister, down from 30 in the last government. The issue had been a central demand of the Yesh Atid party, which had wanted a cap of 18 ministers.

With the agreed-upon downsizing of the cabinet, the Likud will reportedly have 10-11 ministers, including three or four from Yisrael Beytenu; Yesh Atid will have five, Jewish Home three, and Livni’s Hatnua is being asked to go down from a promised two ministers to just one — something Livni is bitterly resisting.

Leaks from the talks indicated no ministerial position for Kadima’s Shaul Mofaz, prompting speculation that Kadima may not be in the coalition. Channel 2 claimed Netanyahu does not want Mofaz — with whom he partnered for 70 days late last spring in an unhappy coalition alliance — in the government.

The likely reduction in the size of the Cabinet marks a significant achievement for Lapid, who argued that a lean government would set the right example for Israel as it faces budget cuts in a challenging economic environment. But it is offset somewhat by the fact that there are reportedly set to be eight deputy ministers.

The smaller cabinet will complicate Netanyahu’s difficulties within his own party, where too many outgoing ministers and rising political players are competing for too few cabinet seats. Danny Danon and Tzipi Hotovely, two younger politicians who did well in the Likud party primaries, have been publicly advancing their own claims, but are seen as unlikely to make it into the cabinet. And there may simply not be enough jobs for all outgoing Likud ministers such as Silvan Shalom, Yisrael Katz, Gilad Erdan, Yuval Steinitz and Limor Livnat.

After a weekend of marathon negotiations, the potential coalition partners agreed on Sunday on a general outline of “severe personal sanctions” against Haredim who fail to sign up for IDF or national service. Reportedly, those who do not enlist will not face criminal charges, but will be prohibited from leaving the country and won’t be eligible for welfare and tax benefits (including social security payments for large families), among other penalties.

In addition, religious educational institutions that encourage their students to dodge the draft, like some ultra-Orthodox yeshivas, will face a “significant” reduction in funding from the state. There have been conflicting reports on the number of annual exemptions from military service that will be offered to outstanding scholars. Yesh Atid wants a maximum of 400; reports from the negotiations have indicated that the final number may be closer to 1,500-2,000.

Lapid, who had hoped to become foreign minister, will instead serve as finance minister. The Foreign Ministry post will be kept open for former FM Avigdor Liberman, who resigned in December to fight corruption charges and hopes to clear his name and return quickly to the post. Jewsh Home leader Naftali Bennett is set to become minister of industry and trade.

The defense minister will likely be former IDF chief of the General Staff Moshe Ya’alon (Likud); Housing could well go to Jewish Home’s Uri Ariel, while the same party’s Eli Ben Dahan could take Religious Affairs; and Kadima leader Shaul Mofaz could become minister of welfare.

The coalition will likely comprise Netanyahu’s Likud-Beytenu (31 seats), Yesh Atid (19), Jewish Home (12), and Hatnua (6) — possibly along with Kadima (2) — for a total of 68-70. Labor (15) will lead an opposition that will also include the two ultra-Orthodox parties, Shas (11) and United Torah Judaism (7).