Elections for the 17th Knesset were held in Israel on 28 March 2006. The voting resulted in a plurality of seats for the then-new Kadima party, followed by the Labor Party, and a major loss for the Likud party.

After the election, the government was formed by the Kadima, Labor, Shas, and Gil parties, with the Yisrael Beiteinu party joining the government later. The Prime Minister was Ehud Olmert, leader of Kadima, who had been the acting prime minister going into the election.

In the 2003 elections, Likud, under the leadership of Prime Minister Ariel Sharon, achieved a convincing win by Israeli standards, winning 38 seats in the 120-member Knesset (parliament), with Sharon perceived as tough anti-terrorist leader on the wings of his 2002 Operation Defensive Shield. Labor, led by Amram Mitzna under slogans for "disengagement" from Gaza, won only 19 seats and did not initially join the new government.

Following the 2003 elections Likud suffered severe divisions over several positions taken by Sharon, most notably his adoption of a plan to withdraw Israeli settlers and troops from the Gaza Strip. This was exactly the position taken by Labor and denounced as being defeatist by Sharon prior to the 2003 elections, so it caused tension within the Likud party and in January 2005 Shimon Peres led Labor into a coalition with Sharon to allow the Gaza withdrawal to proceed despite opposition from a majority of Likud members.

As of the fall of 2005, Peres's Labor Party was providing the votes necessary for the Likud-led 30th Government to maintain its majority support in the Knesset. In Labor's internal leadership election scheduled for early November, Amir Peretz campaigned for the party leadership on a platform that included withdrawing Labor from the Sharon-led coalition. Peretz narrowly defeated Peres in the leadership election on November 9, 2005, and two days later all Labor ministers resigned from the Cabinet and Labor withdrew its support for the Government, leaving it without majority support in the Knesset.

Negotiations between Sharon and Peretz set the election date for 28 March 2006. "I'm letting him [Sharon] choose a date in that period between the end of February and the end of March and whatever date he chooses is acceptable to me, the earlier the better," Peretz said at the time. Sharon said: "As soon as it became clear that the existing political framework was falling apart, I came to the conclusion that the best thing for the country is to hold new elections as soon as possible."

The impending elections raised the prospect of a leadership election within Likud, with former prime minister Binyamin Netanyahu expected to challenge Sharon for the party leadership. In late November, Sharon and a number of other Likud ministers and Knesset members announced that they were leaving Likud to form a new, more centrist party, which was eventually named Kadima. The formation of Kadima turned the election into a three-way race among the new party, Labor and Likud, marking a shift from Israel's tradition of elections dominated by two major parties.

Although Kadima was formed primarily of former Likud members, Peres (having lost the Labor leadership election to Peretz) also announced his support for the new party, and later officially left Labor. Peres cited Sharon's leadership skills as a reason for his party switch.