The Likud-Beytenu list got the best outcome it could out of coalition talks considering the circumstances, Prime Minister Benjamin Netanyahu told his faction Thursday, less than a day after concluding weeks of negotiations to form a new government.

“We did our best with 31 seats,” he told the depleted Knesset faction. In the previous Knesset, Likud had 27 seats and Yisrael-Beytenu had 15, for a combined 42 seats.

On Wednesday night, the Jewish Home and Yesh Atid parties reached agreement-in-principle with Netanyahu’s Likud-Beytenu faction, paving the way to form Israel’s next government.

The Foreign and Defense ministries remain in Likud control, and they are the two most important ones for dealing with the threats looming in Israel’s near future, Netanyahu told his colleagues — several of whom are likely to be downgraded from ministerial positions in the next government.

At the meeting, Likud Knesset members voted to install former minister Yuli Edelstein to Knesset Speaker, replacing Reuven Rivlin. An embittered Rivlin, who dropped his candidacy for another term after Netanyahu pulled support, said he would accept the decision, but refused to meet with Netanyahu.

“This term will be one of the most challenging ones in the history of the state. I’m not just saying that, it’s not an exaggeration,” Netanyahu said. “We stand before diplomatic and security challenges, and the most important thing is that this government answer these challenges.”

Speaking directly to incoming finance minister Yair Lapid, Netanyahu pledged to help him pass a responsible budget for 2013. Israel needs a strong and stable economy to withstand and win the battles it faces, the prime minister stated.

On an encouraging note, Netanyahu told his faction that the next cabinet, with its majority of ministers from Likud-Beytenu, would be able to set policy the list could support. He emphasized, however, the need to join forces with other parties.

Former and perhaps future foreign minister Avigdor Liberman expressed gratification with the incoming coalition.

Some in the Likud are privately demanding the cessation of the Likud alliance with Yisrael Beytenu, arguing that it cost the Likud votes in the elections, and now has cost it seats at the cabinet table.