Israeli Prime Minister Benjamin Netanyahu and his main rival Benny Gantz held new talks on forming an emergency unity government Tuesday, with a deadline less than two days away.

A deal would give Israel its first fully functioning government since December 2018, stability that could prove crucial as it confronts the coronavirus pandemic.

The two men had been in talks up until a midnight Monday deadline but jointly asked President Reuven Rivlin for a two-day extension to finalise details.

They resumed negotiations in Jerusalem on Tuesday morning, after releasing a joint statement late Monday hailing "significant progress".

Claims of progress in coalition talks have been made repeatedly since an inconclusive March 2 election, but a deal has remained elusive.

As Israel's unprecedented political deadlock has persisted, there have been widespread calls for an interim national unity government to combat the coronavirus, which has infected more than 11,500 Israelis and killed 117.

Gantz, a centrist ex-military chief, has squared off against the right-wing prime minister in three elections over the past year.

Neither man earned enough support in any of the polls to form a stable governing coalition.

In the March 2 election, Netanyahu's Likud emerged as the largest party but Gantz's Blue and White earned the support of most of the country's 120 MPs.

Gantz was therefore given the first 28-day mandate to try and form a government.

But his chances of forging a stable coalition were always remote, given the deep divisions within the anti-Netanyahu camp.

Israel's former armed forces chief Benny Gantz and veteran Prime Minister Benjamin Netanyahu, who have been foes through three general elections in 12 months, insist they have made "significant progress" in talks on forming a unity government
Israel's former armed forces chief Benny Gantz and veteran Prime Minister Benjamin Netanyahu, who have been foes through three general elections in 12 months, insist they have made "significant progress" in talks on forming a unity government AFP / JACK GUEZ

He called for an alliance that would be led by Netanyahu for a defined period, allowing Israeli politics to have a rare moment of unity as it stares down an unprecedented health crisis.

In the process Gantz broke his political party in two, with more than half his allies in parliament leaving to join the opposition rather than ally with the deeply-divisive Netanyahu.

Since then talks have stalled over a number of key issues.

Forming a government involves distributing ministerial portfolios and agreeing a political roadmap for the country.

A major source of tension has been the choice of a justice minister who will be tasked with overseeing the corruption case against Netanyahu.

Disputes have also emerged over the nomination of a defence minister, including speculation that Gantz, a former army chief, may want the job.

Policy towards the Palestinians, notably Netanyahu's stated desire to unilaterally annex the strategically important Jordan Valley in the occupied West Bank, has also reportedly caused friction.

"Netanyahu, this is our moment of truth. It's either a national emergency government or, a senseless fourth round election, costly and unnecessary in this hour of crisis," Gantz said on Monday night.

"History will not be forgiving towards leadership that shirks its responsibility at this critical point of time."

In office since 2009, Netanyahu is Israel's longest-serving premier and the first to be indicted while in office.

The premier denies charges of bribery, fraud and breach of trust, filed against him in January.

Netanyahu critics have charged that he will stop at nothing to make the indictments disappear, including pushing for a fourth election in the hope of finally gaining a parliamentary majority that could push through legislation granting him immunity from prosecution.