Ya'alon's move came as Netanyahu seeks to bring hardliner Avigdor Lieberman of the Yisrael Beteinu party into his coalition, possibly as defence minister to shore up his one-seat majority in parliament.
Netanyahu leads a government backed by only 61 parliament members in a 120-member Knesset. The entry of Yisrael Beteinu in the coalition would swell its strength to 67.
"This morning I told the Prime Minister that I'm resigning from the government and the Knesset and taking a break from political life," Ya'alon said at a press conference in Tel Aviv adding, "I have no intention of leaving the public and political life, and in the future will return to compete for the national leadership of Israel.
Earlier, Ya'alon, 65, wrote on his Facebook account "I notified the prime minister this morning that following his conduct in the latest developments and in view of the lack of trust in him, I am resigning from the government and the Knesset and taking time out from political life".
"I fought with all my might against manifestations of extremism, violence and racism in Israeli society, which are threatening its sturdiness and also trickling into the IDF, hurting it already," he asserted.
The latest confrontation between Netanyahu and Ya'alon was over the public backing the defence minister gave senior IDF officials to "speak their mind" over the army's handling of recent spike in violence by Palestinian protesters.
"In general, Israeli society is a healthy society, and the majority of it is sane and aims for a Jewish, democratic and liberal country," Ya'alon said adding, "But to my great sorrow, extremist and dangerous elements have taken over Israel and the Likud Party and are shaking the foundations and threatening to hurt its residents".
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