Regarding Labour, their rationale is clear- if they want to become the largest left-wing party they must differentiate themselves from Kadima. That means if Kadima's in the coalition they are not and the other way around. It obviously doesn't work but that is the general idea.
I think your giving Labour too much credit for having a plan for the elections, I don't think they do. As long as the ruling faction within labour of barak and the union remains in power the party doesn't really care much about future elections because I don't think Barak plans to lead Labour in another election and the union doesn't need Labour anymore anyway.