By Tova Cohen and Steven Scheer
TEL AVIV (Reuters) - An upset victory by Israel's centre-left opposition in Tuesday's election could be a welcome change for a business and corporate sector eager for the "peace dividend" that might come with a government willing to talk with the Palestinians.
Although Prime Minister Benjamin Netanyahu's right-wing Likud party is traditionally viewed as more pro-business, leading industrialists say a government led by the Zionist Union opposition is unlikely to pursue an anti-business agenda.
And though a centre-left government may spend more on social and welfare issues, the potential benefits of a return to a peace process outweigh the risks, they say.
Netanyahu's campaign focus on security issues and the threat from Iran's nuclear program has failed to inspire voters, who say economic issues are their overriding concern. After nine years in power over three terms, there's also some Netanyahu fatigue.
Dov Moran, a leading high-tech entrepreneur and developer of the USB flash drive, said he believes that for Israel to be economically successful, peace is required.
Moran is part of a non-profit group called Breaking the Impasse, formed by 200 business leaders to promote a return to the negotiating table for Israelis and Palestinians.
"It doesn't have to be a warm peace, it doesn't mean we have to hug our neighbors everyday or expect them to hug us. But there should be a process where we can trade with them and live a normal life where not everything is dictated by Iran, Iran, Iran," Moran told Reuters.
The last opinion polls before Tuesday's vote showed the Zionist Union, led by Isaac Herzog and former peace negotiator Tzipi Livni, on track to win between 24 and 26 seats in the 120-seat Knesset, against 20 to 22 for Likud.
Critics say Netanyahu, while doing a good job of reining in fiscal spending, has done little in the past six years to address the rapid rise in home prices, the high cost of living or the deterioration in education and healthcare standards.
"No doubt that if we go towards a peace process, security spending should go down and this would clearly allow dividing the pie differently, and even make the pie bigger," Moran said.
Shraga Brosh, head of the Manufacturers' Association, said Herzog would probably fight more than Netanyahu to renew the beleaguered talks, which would benefit Israel by opening up a market for trade with its Arab neighbors.
With 4.5 million Palestinians living in the West Bank and Gaza, any progress that breaks down borders and enhances trade and economic activity is regarded as positive for both sides.
Members of Herzog's Labour party have criticized the government's policy of giving tax breaks and subsidies to Intel <INTC.O> and other multinationals in exchange for investing in Israel. But such business- and investment-friendly policies were not expected to change significantly despite the rhetoric.
"When Labour was in government they were quite supportive of Israeli high-tech in all forms - taxation, grants, export policies," said Yoram Oron, managing partner of Vertex Venture Capital, a key investor in community-based navigation firm Waze.
"Politicians understand that having successful multinationals in Israel is good for the start-up industry."
Industrialists say some of Netanyahu's recent policies have been negative for business, particularly a sharp tax hike on profits from natural resources. And after falling between 2007 and 2011, corporate tax rates have edged higher.
Uriel Lynn, head of the Federation of Israeli Chambers of Commerce, also noted that under Netanyahu new laws favoring unions' rights have been implemented.
"There is no real difference in the economic policy of the political parties who are supposed to be coalition leaders," Lynn said.
Some sectors, particularly banks, could be hit regardless of who heads the next government. That's because Moshe Kahlon, head of the new centrist Kulanu party, is expected to be offered the finance ministry portfolio in exchange for joining a government, whether it ends up being formed by the right or the centre-left.
As communications minister in a previous Netanyahu government, Kahlon boosted mobile phone competition and brought prices down sharply. He has vowed to do the same for banking.
"You will see a negative effect in the market if Kahlon becomes finance minister," said Ady Vigodsky, head of UBS Securities in Israel, who otherwise does not see a major shake-up for the corporate climate if the centre-left comes to power.
(Editing by Sonya Hepinstall)