Following the collapse of the National Unity government on March 15, 1990, the four bills were brought to the Plenum for the first reading on May 28, 1990. As the second and third readings approached (March 18, 1992), the four bills were united into one bill. Among the proponents of the new law were MKs Yitzhak Rabin and Benjamin Netanyahu. Among its opponents were Prime Minister Yitzhak Shamir and MK Shimon Peres.

The new law, which went into force shortly before the elections to the fourteenth Knesset, establishes the rules and procedures for the direct election of the Prime Minister. The law states that the Prime Minister must be elected by more than 50% of the valid votes. If more than one candidate runs and none wins the required majority, a second round of elections will take place with the two candidates who received the largest number of votes. In the second round, the candidate who receives a majority of of the votes becomes Prime Minister.

The newly elected Prime Minister has 45 days in which to form a government. The new government does not need the approval of the Knesset, though the appointments of the ministers do need Knesset approval. In addition, 61 Knesset members can bring the Prime Minister down in a vote of no-confidence, thereby bringing about his/her resignation and early elections for the Knesset and Prime Minster. The same situation can result from the following conditions: A decision of the Prime Minister to dissolve the Knesset; a resolution by the Knesset to dissolve itself; failure to pass the annual budget law by the end of March of the new fiscal year.

Special elections of only the Prime Minister would result from the following situations: The newly elected Prime Minister cannot form a government within 45 days; the Prime Minister resigns on his/her own initiative; the Knesset decides to remove the Prime Minister from his/her post because of a criminal indictment involving disgrace; 80 or more Knesset members decide to remove the Prime Minister because of some other reason; the Prime Minister cannot fulfill his/her duties properly or death.

On May 29, 1996, the first direct elections to the Prime Minister took place with Shimon Peres and Benjamin Netanyahu as the candidates. Netanyahu won the elections with a lead of 29,457 votes, and a 50.49% majority. This new method of direct elections caused a significant drop in the political power of the two largest parties, Likud and Labor which had a total of 84 Knesset seats in the thirteenth Knesset and only 66 seats in the fourteenth. At the same time, the number of mid-size (5-10 seats) parliamentary groups increased.

Immediately following the 1996 elections, MKs Yossi Beilin and Uzi Landau initiated a bill to cancel the direct election of the Prime Minister. Their justification for this move was the overall weakening of the Knesset and specifically of the two largest parties. Since then, there have been other proposals to change the law, though none have passed further than a first reading in the plenum.

In the direct elections for Prime Minister held on May 17, 1999, Ehud Barak won over opponent Benjamin Netanyahu with a lead of 388,546 votes and a 56.08% majority.

In Section 8, Paragraph 3A in the Basic Law: The Government, the law stated that in the case of special elections for the Prime Minister only, the candidates must be current Knesset members.

The upcoming February 6, 2001 elections are only for the Prime Minister after Prime Minister Ehud Barak resigned and the Knesset did not dissolve itself. In order to allow for the possibility of Benjamin Netanyahu (not currently an MK) to run as a candidate, the Knesset amended the law on December 19, 2000. As a result, the candidates for Prime Minister do not have to be members of Knesset, but must be nominated by a party currently represented in the Knesset. Even though the amendment to the law is nicknamed for him, Netanyahu decided not to run in these elections. The candidates remain Ehud Barak (Labor) and Ariel Sharon (Likud).