Obama's Middle East moment

Enough of charades. The Israeli government of Benjamin Netanyahu is not interested in two-state solutions. For all his expressed eagerness to negotiate, Netanyahu is unwilling to countenance a viable Palestinian state. His administration wants process, not substance – talks instead of a deal.

If any good is to come from the public humiliation of Joe Biden, the US vice-president, during his recent visit to Israel, it resides in the removal of residual doubts about Netanyahu's objectives. The Israeli prime minister has clarified things.

The US must now recalibrate its thinking. Barack Obama could shrug his shoulders and abandon hope; or he could reclaim US leadership by setting out his own peace plan delineating the White House's view of the essential terms of a bargain between Israel and the Palestinians.

The nature of Netanyahu's half-hearted apology to Obama's administration said it all. He was sorry Biden had been embarrassed by the timing of the announcement of further housing construction in occupied East Jerusalem. But he had no intention of halting the expansion of Jewish settlements.

This intransigence over East Jerusalem mirrors a refusal last year to offer more than a partial moratorium on building in the West Bank. The settlement policy has thus come to describe the fundamental contradiction in Netanyahu's position: the continued colonisation of Arab land puts beyond reach the Palestinian statehood he professes, albeit grudgingly, to accept.

One senior US official told me late last year that Barack Obama had understood this after his first clash with Netanyahu. The US president later admitted publicly that he had underestimated both Israeli intransigence and Palestinian divisions. But hopes lingered in Washington that Netanyahu – cast by some Israeli officials as an unwilling prisoner of his even harder-right coalition partners – might change. No longer.

Faced with the latest affront to the efforts of his special envoy, George Mitchell, Obama will be pulled two ways. Some will say he should play hard ball, cutting aid to Israel; others that he should seek a face-saving formula to patch things up.

One temptation must be to emulate the tactics adopted nearly 20 years ago by George Bush's administration. Faced with similar obduracy over settlements, James Baker, then US secretary of state, told Israel not to bother calling Washington until it was "serious about peace”.

There are, though, countervailing pressures. Obama is struggling to get health reform through Congress. The mid-term elections are looming, and the pro-Israel lobby in Washington is mobilising behind Netanyahu. Voices in the administration will whisper he would do better to calm things down.

You could see elements of both approaches in Hillary Clinton's response last week. The US secretary of state at first reacted with fury to the snub to Biden. Soon after she was emphasising that, in spite of differences, there is an unshakeable bond between the two nations.

The two things, of course, are not necessarily mutually exclusive. Yet Clinton's comments describe the perennial tension in the US position. What is needed is a bolder American strategy – a reassessment of the relationship that escapes the false dichotomy between friend or foe.

Obama should take his cue from Netanyahu. The Israeli prime minister last week commented that while the two nations had important mutual interests, he was obliged to act "in the vital interests of the state of Israel”. Quite so. Obama should say much the same: though his administration remains committed to the security of the Israeli state, its first responsibility is to advance the interests of the US.

Israel's intransigence threatens US interests. It has long been clear that Netanyahu's policies undermine US influence in a region vital to its security. Now senior US military commanders are saying publicly what they have long acknowledged privately. General David Petraeus told Congress this week that the perception of US favouritism towards Israel foments anti-Americanism in the region. In so doing it puts US troops and civilians in harm's way.

This is not to say that the US administration should seek to punish Israel. Rather, Obama should be entirely open about his differences with Netanyahu and, in particular, about the threat to America's interests flowing from settlement expansion.

An unqualified commitment to Israel's security cannot any longer presume automatic US support for Israel at the United Nations. What is needed is open recognition in Washington that US interests – and in the long term those of peace in the region – would be better served by an even-handed approach.

Netanyahu is driving Israel towards diplomatic isolation. I cannot recall a moment when friendly officials and politicians – European and American alike – were as scathing about an Israeli government. Netanyahu, one staunchly pro-Israel foreign minister told me, was losing Israel all benefit of the doubt.

Obama needs to go beyond candour. The US president should spell out the essential parameters for a fair peace agreement. Those terms should be presented to Israel and the Palestinians alike as the starting point for resumed negotiations. They should be forwarded simultaneously to the UN security council for endorsement by the international community.

Everyone knows the parameters: a Palestinian state based, subject to negotiated land swaps, on the 1967 borders; a shared capital in Jerusalem; internationally-guaranteed security for Israel; and agreed constraints on the Palestinian right of return. But the very act of putting them on the table with the imprimatur of the president would restore US leadership in the region.

Israeli friends tell me that to focus on Netanyahu's intransigence is to let the Palestinians – and above all Hamas – off the hook. They have a point. It is far from evident that a divided Palestinian side has the will to make peace. But that is the point: Palestinian intent needs to be tested.

Netanyahu's administration is fast closing down the already slim chance of a two-state solution. The expansion of settlements will soon make the difficult impossible. Obama may have one last chance to advance the cause of peace. To grasp it he must present his own plan.