* Netanyahu declares victory
* But Israeli PM still short of parliamentary majority
* Initial polls gave him 60 of legislature's 120 seats
* Updated projections drop figure to 59 seats
* Election was Israel's third in less than a year (Adds updated exit polls)
By Jeffrey Heller
JERUSALEM, March 3 (Reuters) - Prime Minister Benjamin Netanyahu led on Tuesday in a cliffhanger election in Israel, but was still short of a governing majority in a third national ballot in less than a year, exit polls showed.
On the basis of initial projections by Israel's three main television channels, Netanyahu, head of the right-wing Likud party, claimed victory in Monday's vote over his main challenger, former armed forces chief Benny Gantz of the centrist Blue and White.
A win for Netanyahu, 70, after inconclusive ballots in April and September, would be testimony to the political durability of Israel's longest-serving leader, who fought the latest campaign under the shadow of a looming corruption trial.
It would also pave the way for Netanyahu to make good on his pledge to annex, after the election, Jewish settlements in the occupied West Bank, and the region's Jordan Valley, under a peace plan presented by U.S. President Donald Trump.
Palestinians have rejected the proposal, saying it was killing their dream of establishing a viable state in the West Bank and Gaza Strip, territory Israel captured in the 1967 Middle East war.
Israel's three main TV channels initially projected that Likud and like-minded parties would capture 60 of parliament's 120-seats, just one short of a majority.
In updated exit polls, Channels 12 and 13 dropped the figure to 59, potentially making Netanyahu's coalition-building task harder. Actual results will be issued later on Tuesday.
During an acrimonious campaign which focused more on character than on policy, right-wing and religious parties had pledged to join a Likud-led government.
A Likud spokesman said the prime minister would deliver an early-morning victory speech at the party's election headquarters in Tel Aviv.
Ahead of the address, Netanyahu wrote on Twitter: "We won thanks to our belief in our path and thanks to the people of Israel."
Gantz, in a speech at his party's election headquarters, stopped short of conceding defeat, saying the election could result in another deadlock.
"I will tell you honestly, I understand and share the feeling of disappointment and pain because it is not the result we wanted," he said.
The exit polls showed Likud taking between 36 and 37 parliamentary seats versus 32 to 34 for Blue and White - a gap that would make it far harder for Gantz to find a path to putting together a governing coalition.
In the previous election, in September, Blue and White edged past Likud, taking 33 seats to its rival's 32, but Gantz, like Netanyahu, was unable to put together a ruling coalition.
Netanyahu campaigned vigorously on his strongman "security-first" platform, familiar to Israeli voters over decades, and his loyal base of blue collar voters has stood firmly behind him throughout, seemingly unfazed by his imminent trial.
"While we need to wait for the final results, there is no doubt that Prime Minister Netanyahu has won a significant political mandate from the Israeli people," said Yohanan Plesner, president of the Israel Democracy Institute. "Israelis voiced their support for the man they perceive to have brought them security and prosperity," he said.
Netanyahu's re-election bid has been complicated since the last election by his indictment on charges of bribery, breach of trust and fraud over allegations he granted state favours worth millions of dollars to Israeli media barons in return for favourable press coverage and that he wrongfully received gifts.
The first trial of a sitting prime minister in Israel is due to begin on March 17. Netanyahu denies any wrongdoing.
During the campaign, Gantz termed Netanyahu "the defendant", accusing him of seeking to retain power to promote legislation that would bar authorities from putting a serving prime minister on trial.
Netanyahu has portrayed Gantz, 60, as a "coward", saying he would need Arab politicians' support in parliament to form a government and that they would tie his hands.
In the final days of the campaign, opinion polls had forecast further deadlock, but turnout was high, at 71 percent, despite concerns about the spread of the new coronavirus.
Voters under home-quarantine, such as those who have recently travelled back to Israel from coronavirus hot spots, voted at special polling stations wearing face masks and gloves.
(Additional reporting by Stephen Farrell, Dan Williams and Maayan Lubell; Editing by Howard Goller)
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