Mr Rabin's Labour party, with its 44 seats, has signed a pact with the left-wing party Meretz and the ultra-Orthodox Shas party, consolidating a coalition of 62 seats - a majority in the 120-seat Knesset. The Labour-led coalition will also be able to count on support from the Arab parties, although they will not form part of the coalition.
Last night Labour was still holding talks with other potential coalition partners - including the right-wing party Tsomet - but Mr Rabin's majority is now secure enough to start pushing through policy changes which Palestinians hope will bring about a new round of peace talks in Rome within weeks. An early meeting is now expected between Mr Rabin and James Baker, the US Secretary of State, or with President George Bush himself.
Mr Rabin will announce his cabinet tomorrow and it is likely that he will keep the defence portfolio for himself. As a former defence minister, Mr Rabin believes that he must take personal charge of the security implications of an autonomy deal.
Although Palestinians do not expect much sympathy on the security front from Mr Rabin - the man who, four years ago, ruthlessly sought to crush the intifada - his hand on defence means he may at least be able to diffuse the fears of the Israeli right.
The Foreign Ministry is expected to go to Mr Rabin's arch- rival, and his predecessor as Labour leader, Shimon Peres. Mr Peres' politics are more dovish than Mr Rabin's, but he enjoys wide support in the party. However, Mr Rabin will insist that overall control of the peace talks remains in his office.
The appointment of a housing minister - the man who will control Jewish settlements - has not yet been decided, although it looks likely to go to Labour and not, as feared, to a right-wing coalition partner.
Signalling that the left will have significant influence in Mr Rabin's government, the pact with Meretz, which holds 12 seats, gave the party the Education Ministry and full rights to express its view that the end result of the peace process should be a Palestinian state.
Though less stridently opposed to a Palestinian state than Likud, Labour has always refused to discuss such a prospect, seeking to concentrate on securing only interim autonomy. With Meretz inside the coalition, the concept of a Palestinian state will cease to be taboo. Meretz also won the right to argue as a coalition member for the inclusion of the Palestine Liberation Organisation in later stages of the peace process.
The impact of the Labour-Shas pact will not trouble the peace process but it might upset Israel's domestic scene, particularly the religious community. By joining Labour, Shas has broken away from the ultra-Orthodox camp, ignoring their dictat to shun a coalition with Labour.