Many have asked why in the world the Labor Party would join what otherwise appears to be a Right leaning coalition. While the Israeli political arena is generally ridiculously complex, the answer to this question is relatively simple. It results from four things.
First, when the coalition appeared to be Likud and Kadima, the Labor Party had everything to gain by going into the opposition. In fact, Ehud Barak and Labor would have led the opposition. There would have been nothing at all to gain by joining the coalition because surely Kadima would have taken all of the major portfolios in the government that might have been of interest and concessions to Labor would have been non-existent. On the other hand, with Kadima joining the opposition, there was no chance that Labor would have much of a voice there. Ehud Barak would have played second fiddle to Livni. Labor's voice would have been overwhelmed by Kadima's. Thus, with Kadima in the opposition, there was far less to gain for Labor by remaining there. Suddenly, at least consideration of joining the government made sense.
Second, Netanyahu offered Labor and Barak specifically more than they could legitimately have desired. His party has grossly disproportionate power in this government and his voice will now be much stronger. Barak will speak for the left, not Livni. Barak will also be the Defense Minister which will make Israel much stronger in dealing with Iran.
Third, enabling Netanyahu to form a government without National Union removed the far right radical Zionist settlers from the coalition, significantly weakening them and allowing the coalition to avoid giving concessions to them which could and likely would have worsened relationships with the Palestinians, with Israeli Arabs, and with the international community.
Fourth, the Labor party, believe it or not, actually CARES about Israel and its future. Yes, this coalition may go no where. Ambiguous policies required in order to form this broad a coalition will lead to nothing radical happening. That said, when radical is bad, my friends, you're better off without it.
There is no real hope for a lasting peace to be forged between Israel and the Palestinians in the next few years. There isn't even a Palestinian government that speaks for Gaza AND the West Bank with whom to negotiate. Hamas is being rearmed by Iran and Iran is working to acquire nuclear weaponry.
The demand that Netanyahu continue on the road to peace is, at the moment, the wrong thing to do. The road is impassible, bridges have been washed out and will take time to rebuild. Netanyahu and this government need to be respectful of the road upon which they travel, to not do damage to what has already been created in the process, for certain. However, continuing forward on that road is just not possible now. Demanding that it do so will not move the process forward without killing the process entirely (and many people with it) as the two sides plummet from those washed out bridges into the torrents of violence.
What Israel and those desirous of peace need now is a cooling off period and this government is well suited for that.