Exit polls showed that Israeli Foreign Minister Tzipi Livni won with roughly 48 percent of the vote to take over the party led by Ehud Olmert.
Israeli prime minister resigns from his post, but vows to pursue a deal with Palestinians and Syrians.
Tzipi Livni, Shaul Mofaz, and Bejamin Netanyahu are the top three politicians most likely to succeed Prime Minister Ehud Olmert, observers say.
Ehud Olmert's announcement on Wednesday night to cede leadership in September could spur a party shake-up and a shakier peace process.
The exercise involved more than 100 jet fighters, helicopters, and air-refueling tankers, according to a new report.
The EU's Javier Solana heads to Iran this weekend to offer revised US-EU incentives.
Foreign Minister Tzipi Livni is increasingly seen as the likely successor to Prime Minister Ehud Olmert.