Life in Israel an ultra-orthodox paradox

Back in Israel after a 13-year interval, the changes are highly visible, the mood vastly different. Were there ever this many ultra-orthodox Jews in the streets of Jerusalem, flocking to the Western Wall of the ancient temple on Shabbat eve - some of them resplendent dudes in their black stockings, frock coats, fur or felt hats, and curly ringlets?

Was the coastal corridor such a monument to the high-tech industry that now contributes 40 per cent of Israel's exports, switches start-up entrepreneur for doctor in Jewish mothers' ambitions for their sons, and fosters such a hedonistic lifestyle that Tel Aviv has just been voted the best ''gay city'' of 2011?

In the 20 years of peace negotiations with the Palestinians, has the outlook for settlement ever been so bleak and pessimistic?

Within and without, the few givens and certainties about Israel and its surrounding region are dissolving.

In Israel itself, the old mix of nation-building pioneers - Ashkenazi Jews steeped in European high culture, kibbutzim making a wilderness bloom, doughty women doing what were then ''men's jobs'' everywhere else - is fading fast.

The ultra-orthodox are 20 per cent of the population, breeding three times faster than more secular Jews. They are spilling out into the lands occupied since 1967, whittling down the territory held out to the Palestinians for their future state. Extremists among them attack their Arab neighbours and burn their mosques, then the Israeli soldiers who try to restrain them. Practised on a mass-scale, the contemplative life of Talmudic studies and worship is seen as eroding Israel's human resource base. Many of the ulta-orthodox do little or no work, pay no taxes, give minimal secular education to their children and get exemption from military service.

But they vote. With partners drawing support from the ultra-orthodox and hardline nationalists (many former Soviet citizens), Benjamin Netanyahu of the right-wing Likud Party has the most strongly entrenched coalition of any recent prime minister.

But he is captive of this support. He's been able to apply only token suspension of settlement in the West Bank in response to US pressure, leading to his ''Guess who's not coming to dinner?'' episode at the White House a year ago. Senior Palestinian Authority figures say Netanyahu has recently been unable to overrule cabinet colleagues scoring petty points by holding back shares of tax revenue. ''If Netanyahu can't get his cabinet to do that, how can he move towards an agreement?'' one said last week.

Internally, the dominance of the right and ultra-orthodox are removing bit by bit Israel's old liberality. A law removes state funding for institutions that use the Arab term ''naqba'' (disaster) for the evictions preceding the formation of Israel; another allows settler communities to exclude newcomers they don't like; the selection panel for Supreme Court judges has been rejigged, to water down its famous restraint on human rights abuses; and there is a push for formal gender segregation in buses and other public places, already in effect in some areas.

The ''different tribes'' in Israeli society, the new legislation and the judge selection controversy all make it harder to create ''one general ethos'', admitted a government figure. ''It's become more and more difficult to have a Jewish state and a democratic state,'' said another long-time member of the Knesset, the parliament.

Many Israelis also feel beleaguered without. Government spokesmen and diaspora supporters tend to portray the problem as bias. Liberals say they are ignoring ''the elephant in the room'' - the occupation of the Palestinians. ''A whole people can't be kept under repression indefinitely,'' one Israeli journalist said. ''The people being duped most of all are us.''

''You can't hide the refugee camps of Gaza behind the Weizmann Institute [a world famous science centre],'' added a former Israeli diplomat. ''There is injustice in the way Israel has to justify itself but it's a fact of life. We need to fight it with the best tools. The battle is moving from the fringes of the left and right towards the mainstream. I'm afraid we are playing into the hands of the deligitimisers. We are losing the membership card [of democracies], putting Israel under threat.''

It's little comfort that the Palestinians are also in some disarray. Last year's agreement between the secular Fatah Party controlling the Palestinian Authority in the West Bank and the Islamist party Hamas controlling Gaza is getting nowhere. The authority's President, Mahmoud Abbas, was shaken by the fall of Egypt's Hosni Mubarak and other secular Arab leaders last year. His own mandate expired three years ago. Many doubt that Palestinian elections due in five months will go ahead.

Egypt's looser grip on the Sinai desert has given Hamas scope to break out of Gaza, leaving - as one Israeli security specialist gloomily put it - ''no address for retaliation''. The Arab ''spring'' is meanwhile widely referred to as the Arab ''winter''. The Israeli right sees the secular uprising being usurped by better organised Islamists like the Muslim Brotherhood and the Salafists, who've just won two-thirds of seats in Egypt's elections. From there, they say, it's a repeat of Khomeini's post-1979 religious tyranny in Iran. It's expected the Brotherhood will take over in Syria, but make up with Iran (currently close to the Alawi Shiite regime of Bashar al-Assad). But a break-up of post-World War I state boundaries could also be on the cards; only Egypt is a true nation-state.

In this clouded setting, Israeli and Palestinian leaders accuse each other of being unwilling or unable to move forward to agreement. Israelis say Abbas and his non-party Prime Minister, Salam Fayyad, can't modify the ''right of return'' (to pre-1948 homes) in their demands, and still indoctrinate children that Israel has no right to exist (an accusation disputed by European Union and British monitors of West Bank schools). Palestinians say Netanyahu is going through the motion of peace talks only to keep Washington happy as Jewish settlements make a two-state solution increasingly impractical.

This month's desultory talks about talks in Jordan are not expected to lead to progress on a settlement. Foreign interlocutors, Israeli liberals and Palestinians urge an early partial agreement, setting aside big permanent guarantees, to keep the two-state dream alive among Palestinians - and save Israeli democracy. ''A strong, democratic Jewish state depends on it,'' former prime minister Ehud Olmert, of the centrist Kadima Party, said. ''The Palestinians may have time, we don't.''

''It can't be reached in one step, by closing agreement on all issues,'' another Kadima politician said. ''If we want settlement of all issues we will wait another 20 years.'' A senior Palestinian concurred. ''We don't see the state as flicking a switch, but an evolutionary process,'' he said, adding the central bank and other key institutions are certified as ready for statehood.

Possibly Knesset elections due by early next year may shift Israel's position. In August, mass protests swept Israel against a cost of living squeeze and rising inequalities, with 5 per cent of Israel's population gathering in one Tel Aviv square one night. The once-dominant Labour Party hopes this will revive its fortunes and help form a government with Kadima - though celebrity candidates may split the latter's vote.

As the Israeli-Palestinian peace talks get into their third decade, the question seems in the balance. Is a two-state solution still possible? Or is all this negotiation and capacity-building simply a prelude to living together, somehow - two nations in one land - on better terms than the status quo, miserable humiliation for the occupied, corrosive for the occupier?

Hamish McDonald was in Jerusalem earlier this month as part of the Australia-Israel-UK Leadership Dialogue.