Israel is expected to hold fresh elections after the leader of the governing Kadima party, Tzipi Livni, failed to build a coalition government.
Ms Livi told Israel's President Shimon Peres that she had abandoned her attempts to form a majority.
"The people will choose their leaders," she said.
Mr Peres has three days to consult, but correspondents say it is almost certain that elections will be called for early next year.
Ms Livni had set other parties a Sunday deadline to join Kadima in government.
But the key Shas party turned her down, prompting her to say potential partners had made "economically and diplomatically illegitimate" demands.
"I have informed the president that under the existing conditions we should go to elections without delay," Ms Livi said.
The next parliamentary poll had been scheduled for 2010.
After her election as Kadima leader last month, Ms Livni was asked to form a government to replace that of outgoing Prime Minister Ehud Olmert.
He is stepping down amid corruption allegations, but will remain in office until a new government is formed.
Kadima holds 29 seats in Israel's 120-member Knesset and has secured a draft coalition agreement with the centre-left Labour party, which has 19 seats.
Shas, an extra-Orthodox party, has been a crucial ally in Mr Olmert's coalition, with 12 seats.
But on Friday, Shas pulled out of talks for a new coalition, saying its two key demands - to increase child welfare payments and keep Jerusalem off the negotiating table with the Palestinians - had not been met.
On Sunday, Ms Livni issued a statement saying: "When it became clear that everyone and every party was exploiting the opportunity to make demands that were economically and diplomatically illegitimate, I decided to call off (talks) and go to elections."
Israeli Knesset seats
Current coalition (65 seats):
Kadima (centrist): 29
Labour (centre-left): 19
Shas (religious): 12
Likud (centre-right): 12
Yisrael Beitenu (right): 11
National Union-National Religious Party (religious): 9
United Torah Judaisim (religious): 6
Meretz (left): 5
Arab parties: 10
*Special interest party which split into factions