"We do not wish to rule another people. We do not want to rule the Palestinians," he said in a speech before parliament, quoted the Associated Press. But he did not endorse an independent Palestinian state, a key component of the U.S.-backed peace plan.
Netanyahu, leader of the right-leaning Likud party, raised concerns in Washington and the European Union during his election campaign by suggesting he would end peace efforts with the Palestinians and vowing to expand Jewish settlements in the West Bank.
But he toned down his campaign rhetoric after being tasked with forming a government last month and as he worked to broaden his support base among more centrist government members. Last week, he persuaded the moderate Labor party to join his coalition and promised to continue peace talks with the Palestinians.
However, his appointment of Avigdor Lieberman, head of the ultranationalist Yisrael Beitenu party, as foreign minister drew international criticism and heckles on Tuesday from opposition lawmakers as he announced his Cabinet picks.
The Knesset, or parliament, planned to swear in Netanyahu and his ministers at a special session Tuesday afternoon.
Netanyahu increased the number of ministers to 30, with eight deputy ministers, in order to satisfy his coalition partners' competing demands. The Cabinet, which is the largest in Israel's history, prompted criticism that it will prove unmanageable and constitute a waste of public funds during a recession, reported the New York Times.
On paper, Netanyahu presides over a 69-seat coalition -- 13 of them held by Labor -- in the 120-member Knesset, although the margin could be reduced by left-wing Labor defectors opposed to its coalition deal with Likud, Reuters reported. Labor leader Ehud Barak remains defense minister.
The other Cabinet posts comprise a mix of politicians from ultra-Orthodox parties, a hard-line religious party, a hawkish secular faction, and the centrist Labor party, along with Netanyahu's Likud party.
In his speech to parliament, Netanyahu called on the Palestinians to "fight terror" and said he would pursue a final peace deal with them. "Under the permanent status agreement, the Palestinians will have all the authority necessary to rule themselves," he said, according to the AP.
He also praised Islam, saying, "The Islamic culture is great and rich, with many branches in our people's history which has known periods which flourished for Arabs and Jews who lived together and created together."
Netanyahu succeeds Ehud Olmert, who was forced from office by multiple corruption investigations. In a farewell address, Olmert gave an emotional defense of his three-year tenure. He said wars in Lebanon and Gaza under his watch dealt heavy blows to Israel's enemies, and that he feverishly sought peace with the Palestinians.
"I accept with love the criticism of the government. I am proud of the government's achievements, which are many, and I am sorry for my mistakes and they are not few," Olmert said.
Opposition leader Tzipi Livni, foreign minister in the outgoing government, criticized the size of the government and urged Netanyahu to pursue a moderate agenda. "I am full of hope you will reach a peace agreement," she said, reported the AP.