Netanyahu, conceding defeat even before the first official results were available, immediately announced that he was quitting the leadership of the nationalist Likud party.

Exit polls conducted for Israel's two main television stations showed Barak winning the election by between 14 and 17 points, a far greater margin than predicted in pre-vote opinion polls.

In parallel elections for the 120-member Parliament, the exit polls showed Barak's One Israel alliance winning between 29 and 33 seats, down from Labour's 34 seats in the outgoing Knesset, while Likud took only 18-19, down from 32 in the previous elections in May 1996.

The Sephardic ultra-Orthodox Shas movement strengthened its position as Israel's third largest party, winning 14 to 15 seats compared to 10 in the outgoinglegislature.

If the polls are confirmed, Barak will be able to either form a coalition of Left-wing and secular centrist parties or opt for a national unity government that would include the weakened Likud.

``I want to congratulate Ehud Barak for his victory,'' Netanyahu announced at a Tel Aviv press conference shortly after the exit polls were released. ``We must respect the choice of the people, that is democracy,'' he said as Likud militants in the hall broke into sobs.

``After 20 years of service to the state, I have the intention of giving up the leadership of Likud,'' Netanyahu then announced, adding, ``The time has come to unite the people and lower tensions.''

The election results sparked wild celebrations by Labour Party supporters around the country, but there was no immediate statement from Barak himself. Barak, 57, campaigned for election by promising to end the economic slow-down which has gripped the country under Netanyahu and to revive the stalled peace negotiations with thePalestinians, Syria and Lebanon. Barak also pledged to battle the social divisions which worsened under the Netanyahu Government, notably between religious and secular Israelis and between working class Sephardis -- Jews of Middle Eastern origin -- and Ashkenazi or European-descended Jews.

Russian-speaking immigrants who had massively backed Netanyahu in 1996 apparently turned just as massively against him, angered by his failure to tackle problems of unemployment and housing and by the power he gave to Shas and another ultra-Orthodox party in his coalition.

But Palestinians also know that Barak remains a security hardliner and that he will not easily make concessions on such thorny issues as the borders and powers of the Palestinian entity, the status of Jerusalem and the right of Palestinian refugees to return home.

Sheikh Ahmed Yassin, leader of the radical Islamic group Hamas and a fierce critic of peace accords with Israel, dismissed the election of Barak. ``Both Likud and Labour are the same, bothare depriving Palestinians of their land and independence,'' he said in Gaza City. Several Labour Party officials suggested that the best way to tackle the so-called final status negotiations with the Palestinians was by forming a unity government including Likud that could forge a national consensus. Barak has already said that he will submit any final peace accord with the Palestinians to a national referendum.

It was a shocking defeat for Netanyahu. Netanyahu's three years in office were marred not only by deadlock in the peace process and a growing isolation of Israel on the world scene but by numerous political-legal scandals involving senior ministers and other officials.

Meanwhile, Palestinian leader Yasser Arafat welcomed Barak's victory and said that he hoped it would revive the peace process. ``I send my congratulation to Barak,'' Arafat said.

-- AFP