Immediately following Rabin's assassination on November 4, 1995, polls indicated that Shimon Peres would defeat the then-Likud leader, Benjamin Netanyahu, by 30% if elections were held immediately. Peres's advisors encouraged him to call snap elections, a move that no one would have questioned given the circumstances and could have solidified his mandate.

However, Peres decided against holding elections immediately, not wanting to win as a result of sympathy due to the Rabin assassination. Peres ultimately called for new elections on February 11, 1996, facing off against Netanyahu, who had risen to prominence as Israel’s Ambassador to the United Nations.

Netanyahu entered the election as the clear underdog. Succeeding Rabin, Peres had the dual advantages of incumbency and the public's sympathy for Rabin's legacy. This would be the first direct election in Israel's history (as a law had been passed in 1992 to mandate the direct election of a Prime Minister.) Netanyahu, who saw himself as an expert regarding American practices, decided to hire an American election advisor. Netanyahu brought on the well-known Republican strategist Arthur Finkelstein, who devised a campaign centered around two slogans: one claiming that Peres would divide Jerusalem and the other asserting that Netanyahu would bring peace through strength. Finkelstein's research identified a vulnerability in Peres's campaign related to concerns that he might divide Jerusalem.

But before Netanyahu could begin campaigning, he had to clear the field of other contenders. The most formidable was MK David Levy, who had been active in Likud for two decades and was now attempting to start his own party. Netanyahu tried reaching out to Levy but was initially rebuffed. Levy declared, “I didn't immigrate to Israel and raise children and grandchildren here so Bibi could send them to war.” He further expressed that the prospect of Netanyahu as Prime Minister should prevent every Israeli citizen from sleeping. Ultimately, Levy, along with other potential rivals, capitulated.

Netanyahu’s campaign was also bolstered by a series of bombings that diminished the popularity of the peace process. Additionally, Netanyahu benefited from his right-hand man, Avigdor Lieberman, who maintained strong ties with the new and growing Russian immigrant constituency. Furthermore, Netanyahu made successful overtures to the ultra-Orthodox community.

The campaign culminated in a one-on-one debate where Netanyahu, having spent days preparing, clearly outperformed Peres, who had only prepared for an hour or two and appeared overconfident. The outcome of the debate was widely regarded as a decisive win for Netanyahu. Despite this, polls on the eve of the election still showed Peres slightly ahead. Early vote counts suggested a Peres victory, but as the counting continued overnight, Netanyahu emerged victorious with 50.5% of the vote, securing 29,457 more votes than Peres.