Jewish Home party leader Naftali Bennett, ending talks Wednesday afternoon with Yesh Atid head Yair Lapid, said he was confident that the two parties would yet resolve their differences with Prime Minister Benjamin Netanyahu’s Likud-Beytenu and form a coalition. “There’ll be a government. I’m optimistic,” Bennett said, before heading off for further consultations with Likud representatives.

Bennett, who has emerged as the mediator between Netanyahu and Lapid in the final days of the coalition countdown, was speaking hours after Netanyahu issued an ultimatum to Lapid: either sign a deal to join the coalition, or the Likud will start negotiating with the ultra-Orthodox parties, Shas and United Torah Judaism.

“If there is no breakthrough in coalition negotiations with Yair Lapid in the next few hours, and he doesn’t back down from his excessive demands, the prime minister will initiate talks with the Haredi parties,” a senior Likud official said Wednesday morning.

It was not immediately clear how potent the Likud threat was, since even with both ultra-Orthodox parties on his side, Netanyahu could not muster a Knesset majority without Bennett. And Bennett has been resolute that he will not join a coalition without Lapid.

Moreover, the ultra-Orthodox parties, having been spurned by Netanyahu in the past few weeks of talks, will likely not ally with him cheaply, and will not easily accept the idea of mandatory national service for their young males — a demand that has been emphatically advanced by Lapid and Bennett, and that has wide public support.

Still, Shas’s Eli Yishai was reported in the ultra-Orthodox media to have been consulting with the party’s spiritual leader Rabbi Ovadia Yosef Wednesday over the possibility of joining the coalition.

Netanyahu has only until Saturday night to inform President Shimon Peres that he has formed a coalition. If he fails, Peres can charge another politician with the task, or Israel could face new elections.

Likud’s ultimatum followed Yesh Atid’s rejection of Likud’s suggested power-sharing deal for the education portfolio — the key obstacle to a coalition deal. 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 was also reported Wednesday afternoon to be demanding the Interior Ministry.

“The coalition crisis that we are witnessing now is not merely a battle over ministerial portfolios. Yesh Atid’s insistence on receiving the Education Ministry stems from the fact that the path toward changing Israeli society lies there,” Yesh Atid said in a statement. “Yesh Atid asked for the public’s trust in order to battle not just for [a reduction in] the size of the government and equal share of the burden, but also for education and Israeli society’s future. Yair Lapid will not back down on his principles, even it means he has to sit in the opposition.”

“Education is at our core,” Yesh Atid MK Meir Cohen told Israel Radio. “It’s up to the prime minister to decide whether to give it to us or face new elections.”

The first-time MK said Yesh Atid wanted control of the Education Ministry because of its importance in shaping Israeli society, and charged that Likud only cared about the post because it ensured the party could maintain its influence over the ultra-Orthodox public by controlling the purse strings that fund Haredi educational institutions.

“We plan to introduce greater transparency to the budget, which discriminates between sectors [of Israeli society],” said Cohen, himself a former school principal.

Shortly after reports of Likud’s ultimatum began to circulate, Bennett posted a message on Facebook reading: “My friends in the Likud: forget about it. This is not the way. There are gaps. We need to talk and compromise, all of us, until a new government is formed. There is a state to worry about.”

Netanyahu met in secret with Bennett for several hours Tuesday night. During the meeting, Bennett repeatedly called Lapid in an effort to bridge the differences between the two leaders, but with no success.

Likud, Yesh Atid and Jewish Home were also battling over control of the powerful Knesset Finance Committee, with Jewish Home adamantly seeking to chair the panel.

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.

They also reportedly agreed to raise the threshold for Knesset representation from 2% to 4% from the next elections, a move that could dramatically reduce the number of parties making it into parliament.

With the agreed-upon downsizing of the cabinet, Likud would reportedly have 10-11 ministers, including three or four from Yisrael Beytenu; Yesh Atid would have five, Jewish Home three, and Tzipi Livni’s Hatnua could be asked to go down from a promised two ministers to just one — which Livni is bitterly resisting, and which Likud was said Wednesday to be ready to concede.

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, in part because of the positions Mofaz has taken in the last few weeks’ coalition negotiations.

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 would complicate Netanyahu’s difficulties within his own Likud, 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.