TAIPEI—A last-minute effort by Taiwan’s opposition parties to combine forces in a coming presidential election has crumbled in spectacular fashion, increasing the likelihood that the island democracy will continue as a central flashpoint in ties between the U.S. and China.

Taiwan’s main opposition Nationalist Party, also known as the Kuomintang, struck a surprise deal last week with the Taiwan People’s Party to unite in a coalition ticket favoring friendlier ties with China that political analysts said had a real shot of coming out on top in the island’s presidential contest in January.