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The far-right politician Itamar Ben-Gvir will be Israel’s national security minister under a coalition deal with Benjamin Netanyahu’s Likud party, in what is likely to be the most rightwing government in the country’s history.

The agreement comes after the prime minister-designate’s alliance won a comfortable victory in this month’s parliamentary election, Israel’s fifth in less than four years.

Netanyahu is still in talks with three other parties on forming his new government.

“We took a big step [last night] towards a full coalition agreement, towards forming a fully, fully rightwing government,” Ben-Gvirsaid in a statement.

The leader of the Jewish Power party, who was convicted in 2007 of racist incitement against Arabs and backing a group considered by Israel and the US to be a terrorist organisation, will have an expanded security portfolio that will include responsibility for border police in the occupied West Bank.

The Palestinian Authority’s foreign ministry said the appointment would have a “potentially catastrophic impact on the Israeli-Palestinian conflict” and hinder the revival of negotiations between the two sides.

Mairav Zonszein, a senior Israel analyst at International Crisis Group, said Ben-Gvir’s expanded security portfolio could be a “game changer” in the West Bank, which is under the effective control of the Israeli military.

“Israel is moving more and more powers that were normally held by the defence ministry or military to civilian ministries,” she said.

Granting Ben-Gvir authority over border police in the West Bank “is a form of blurring the boundaries between Israel and the West Bank”, she added.

Israel captured the West Bank, Gaza and East Jerusalem - areas that Palestinians claim as their state - in the 1967 six-day war. US-sponsored negotiations stalled in 2014, and the expansion of Israeli settlements has continued despite international opposition.

Hazem Qassem, a spokesperson for the Islamist Hamas group that governs Gaza, said Ben-Gvir’s deal with Netanyahu meant the new Israeli government would be “more fascist and extreme”.

The militant Islamic Jihad group also predicted further tensions.

The agreement, which gives Ben-Gvir a position in Israel’s security cabinet, comes after months of tensions in the West Bank after a deadly army crackdown prompted by a spate of fatal attacks by Palestinian militants in Israel.

It also comes days after a coordinated bombing attack on two bus stops in Jerusalem in which an Israel-Canadian student was killed and at least 14 others were wounded.

Ben-Gvir’s party will also take ministries in charge of development in the Negev and Galilee regions, the heritage ministry, a deputy position in the economy ministry and chairmanship of the Knesset public security committee.

As a settler living in the West Bank, Ben-Gvir has long been a fierce opponent of Palestinian statehood. During the election campaign, he brandished a gun at Palestinian demonstrators in occupied East Jerusalem.

He also supports Jewish prayer at the al-Aqsa mosque complex, a flashpoint site holy to both Muslims and Jews, who know it as the Temple Mount. The site, said to have once housed two ancient Jewish temples, has been the scene of repeated clashes between Muslims and Jewish visitors defying decades-old rules prohibiting prayer by non-Muslims there.

Ben-Gvir, a practising lawyer, champions capital punishment and looser open-fire regulations for soldiers. But as his party has edged towards government, he has moderated some of his earlier positions and says he no longer backs the expulsion of all Palestinians, but only those he deems traitors or terrorists.

His rise prompted the US state department to say this month that Washington expected all officials in the new Israeli government to share the values of an “open, democratic society, including tolerance and respect for all in civil society”.