What Avigdor Lieberman is doing right now, potentially holding up a coalition with his demands that contradict the demands/desires of all the other parties, is symbolic of what is wrong with the electoral system as employed in Israel. Mind you, Lieberman right now is doing nothing different that what other parties have done in the past when they found themselves in similar situations, as holding the key to the coalition despite being small in size. And, Lieberman does not need to give up his ideals just to make a coalition, just as no other party needs to.

That being said, the fact that a small party can throw a wrench into the functioning, or in this case the formation, of the government, is problematic and unstable.

Of course, Netanyahu can choose a different party. He can look for a party other than Yisrael Beyteynu to join his coalition, or he can find a party or parties other than Shas and UTJ to join his coalition, or he can negotiate and pay one of his potential coalition members off to compromise. Solutions are available - perhaps (and if not, new elections again). The point is that the small parties wield an exaggerated amount of power in the formation, and sustainability, of government in this system.