the Obama administration would find it politically risky to embrace a government that included Lieberman, who has voiced controversial views about Arabs (Ha'aretz),also give Labor some added punch in the coalition-wrangling going on. Even though Israeli voters, especially on the right, are on the whole indifferent to these U.S. concerns, the senior figures in each party realize that strained relations with the White House are not in Israel's interest. They will be weighing the various domestic and international costs and benefits carefully.
However, it is unclear whether it is possible for these elections to yield a coalition that might appeal to the American administration - even if that were a priority for Israelis. A Kadima-Likud-Labor unity government (28+27+13 = 68 seats) would be a hard pill for Netanyahu to swallow, seeing as it would mean little change from the current line. Meanwhile, the pressure will be on Livni to explain her negotiations with Lieberman to Israeli voters from the left and, behind closed doors, to members of the Obama administration. Netanyahu knows, a fortiori, that a far-right coalition would spell trouble for American-Israeli relations.
In a comment earlier today, Nobody remarked about the need for electoral reform in Israel. There are two conflicting aims that disinterested voters pursue with reform proposals: 1) "true democracy", or 2) stability. The former is almost impossible to satisfy, as no electoral system is immune from challenges of injustice. With regard to the latter, there are certainly systems that make for more stable government. However, I would argue that Israeli society is more divided - ethnically, religiously, and socio-economically - than those countries that do not enjoy the curse of extreme political fragmentation. Lastly, as any student of electoral systems will tell you, there are no "disinterested" reforms in this sphere of politics. Since the proposed changes are always negotiated by political parties, they tend to favor those currently in power, or are at least designed to advance the interests of incumbents (occasionally there are miscalculations though). I am not sure the electoral system is the problem.