After the signing of the Wye Accords, Prime Minister Benjamin Netanyahu faced significant challenges within his political coalition. Due to the concessions made in the agreement, which included territorial withdrawals, he lost considerable support from the right-wing factions. The situation was further complicated by internal conflicts within his government. For instance, Finance Minister Yaacov Neeman resigned when Netanyahu failed to back him during budget negotiations with the ultra-Orthodox parties, reflecting growing unrest even among Netanyahu's more moderate supporters.

Realizing that he was losing control of his coalition, on December 16, 1998, Netanyahu announced that he was calling for new elections, scheduled for May 17, 1999. As the election campaign unfolded, Netanyahu found himself up against several formidable opponents, not only from the left but also from within the right. Ehud Barak, leading the Labor Party, emerged as his primary competitor. Meanwhile, Defense Minister Yitzhak Mordechai, with whom Netanyahu had a tense relationship throughout his term, was dismissed and went on to form a centrist party. This new party, along with other splinter groups led by former Netanyahu allies such as Benny Begin and Avigdor Lieberman, further fragmented the right-wing vote.

Netanyahu's election campaign, orchestrated by his longtime strategist Arthur Finkelstein, faced difficulties. Unlike his previous campaigns, Netanyahu and his wife, Sara, were more involved in decision-making, emphasizing Netanyahu's achievements. However, their efforts to portray him as the best Prime Minister in Israeli history failed to resonate with voters.

Ehud Barak, a former Chief of Staff and the most decorated soldier in Israeli history, positioned himself as the natural successor to Yitzhak Rabin, even renaming the Labor Party to "One Israel" and forming a coalition with David Levy. Barak's campaign theme, "One Israel, One Draft," directly challenged the ultra-Orthodox exemption from military service, contrasting sharply with Netanyahu's increasing alignment with ultra-Orthodox parties, to whom he promised increased funding and a review of the Supreme Court's powers.

As the campaign progressed, Netanyahu's standing in the polls declined. His slogans, such as “Just Netanyahu, a Strong Leader for a Strong Nation," failed to gain traction, and his attacks on Barak, accusing him of having "too much ambition, too few principles," also had little impact. A debate with Mordechai, his former Defense Minister, turned into a setback when Mordechai publicly challenged Netanyahu's integrity and composure.

In the final days before the election, Mordechai and the other centrist candidates withdrew from the race, but the damage to Netanyahu's campaign had already been done. On May 17, 1999, Ehud Barak was elected Prime Minister with 56% of the vote, marking the end of Netanyahu's first term in office.