If small parties' power is such a problem, why don't the big parties form another grand coalition? Or form Scandinavian-style pre-election pacts with the small parties?
[Edited to acknowledge grand coalitions aren't a foreign concept in Israel]
(In fact, they did form a government coalition in 2013, which lasted about two years. And then there was the 2020, where the two biggest parties in that election, Likud and Blue and White (of which Yesh Atid was a major constituent), formed a government. So it happens. I'm not sure the current two biggest parties, Likud and Yesh Atid, have a radical difference in policy platform. (the most radical things the newly elected coalition government is putting on the agenda are not really from Likus). They certainly are not going to form a government together this time, but I don't think it's because they are radically different, exactly.).
Lapid and other center-opposition leaders have all indicated a willingness to negotiate with a Likud without Netanyahu at the helm.
Of particular note, at the start of the corona crisis, there have already been several failed elections. At the time, Benny Ganz's party ran together with Yesh Atid (and Telem) in a combined list, but since Yesh Atid refused to cooperate with Binyamin Netanyahu (after their own bad expereinces), Benny Ganz chose to split up the combined party and join Binyamin Netanyahu in the coalition, citing the importance of having a stable government for these difficult times (of COVID).
The coalition agreement stipulated that Binyamin Netanyahu will be the Prime Minister for the first two years and Benny Ganz for the final two years (elections in Israel are theoretically every 4 years). However, after two years, Binyamin Netanyahu disbanded the government (by manufacturing a disagreement so that the coalition could not vote together). Benny Ganz then learned his lesson.
(There are of course more disagreements and issues and a lot more nuance then what I can present in a short comment on an online forum, but hopefully this is a useful example to understand the sort of issues we are having)
Going back to my original post, I'm trying to say that the fact that whatever factors have lead to this sort of rotten situation (and that we stay in that situation continually) are the real problem, and not specifically the voting system. Even if we accept that proportional representation is the best system ever, it is not on its own enough to prevent the sorts of problems you see lately in democracies around the world.
But yes, it seems politics world-wide, the US certainly included, is increasingly more about personality, affect and identity/community -- and sheer competition for power between different players -- than it is about policy platform, agreed. Sometimes between parties which are actually not that different from each other. I think we may be agreeing with each other.
I think the reason that a "national unity" coalition government in Israel seems so unlikely currently may not in fact be that the major parties "are radically different from each other". (The coalitions formed may be, because of the outsized influence of minority parties on the flanks necessary to build the coalition, which is the whole topic of this thread -- why don't the major parties form a coalition to avoid that? I suggest the reason they don't is not that they are radically different from each other, disagreeing with the comment I was replying to)