Can Netanyahu Repair the Rift With the U.S.?

When an Israeli cabinet minister proposes that his country impose sanctions on the United States, his government is clearly in a state of distress. Pressure from the Obama Administration to freeze Israeli settlement construction and move toward a two-state peace with the Palestinians has reportedly spurred Minister-without-Portfolio Yossi Peled (who belongs to Prime Minister Benjamin Netanyahu's own Likud party) to recommended that Israel shop outside the U.S. for aircraft and military hardware, sell sensitive technology to clients disapproved of by Washington, and invite America's rivals to play a greater role in the Middle East. And if that sounds like chutzpah given the continued U.S. direct aid to Israel — $2.5 billion in military aid this year alone — two Israeli newspapers reported Wednesday that Peled had even proposed that Israel use its influence with some Democratic donors in the U.S. as leverage against Obama's positions.

Peled's proposals aren't likely to be adopted, but they are a sign of the deep anxiety in Israel's right-wing government over the Obama Administration's intention to move quickly toward the creation of a Palestinian state at peace with Israel. Particularly irksome to Netanyahu is Obama's insistence that Israel immediately freeze all construction in settlements in the West Bank and East Jerusalem — territories conquered by Israel in 1967 — that together with Gaza are envisaged as the basis of a Palestinian state. Netanyahu's government has thus far refrained from embracing the two-state formula, and is committed to expanding the existing settlements. It claims a right to continue building inside the boundaries of the settlements to accommodate their "natural growth," an argument flatly rejected by President Obama and Secretary of State Hillary Clinton. "The United States does not accept the legitimacy of continued Israeli settlements," Obama said in his Cairo speech. "This construction violates previous agreements and undermines efforts to achieve peace. It is time for these settlements to stop." (Watch video of 'Graffiti for Hire in the West Bank')

The Administration's position leaves Israel little wiggle room on settlements — a huge problem for a right wing-led government whose coalition agreement is premised on continued construction in the occupied territories. And as he shapes up to deliver a major policy address Sunday billed as a response to Obama, Netanyahu is feeling the heat. Israeli media have reported aides to the prime minister complaining that the White House is seeking a confrontation with Israel in order to ease anti-American hostility in the Muslim world, and even that Obama is seeking "regime-change" in Israel. (Read 'Why We Should Start Talking to Hamas')

But the issue of settlements may be a smart litmus test of Israel's intentions, because it draws a clear line between those in Israel and among its supporters abroad who support a two-state solution, and those who don't. Obama is betting the ayes have it. Since taking office earlier this year, Netanyahu has tried to keep his cards close to his chest, but now he's being forced to reveal his intentions. Opinion polls often find a majority of Israelis willing to give up West Bank settlements in exchange for a genuine peace, and that same majority is unlikely to be willing to jeopardize Israel's relationship with the United States in order to defend the settlers' right to build on Palestinian land, a right the settlers say is based on the argument that it forms part of the Biblical Land of Israel. (A poll commissioned by a settler university published Friday showed 56% of Israelis calling for the Prime Minister to resist Obama's demands.)

Netanyahu was reportedly shocked to discover, during his recent Washington trip, that Obama's position on settlements had the backing of many key friends of Israel on Capitol Hill. The President, in his Cairo speech, reaffirmed a rock-solid bond with Israel based on ensuring its security in a hostile environment. But that support doesn't translate into condoning the "Greater Israel" expansion into occupied territories represented by the settlements, which play little role in Israel's security today except as a drain on resources. A settlement freeze, conceived in the so-called Road Map to peace (first outlined in 2002 by the U.S., the E.U., Russia and the U.N.) as part of a first step toward a two-state solution, is not perceived as compromising Israel's security, which is why the Administration has thus far managed to secure congressional support for its position.

Netanyahu pleads that his hawkish coalition will collapse if he does as Obama asks, but skeptics point out that the Prime Minister chose to ally with the far-right when he might have chosen the centrist Kadima party, which has enough seats to shore up a government committed to a two-state solution. Netanyahu's problem is not simply his partners, but also his own Likud party. Former Likud leader Ariel Sharon was forced to quit the party — in the face of a challenge led by Netanyahu — when he pulled Israel out of Gaza. Likud's party platform specifically opposes the creation of a Palestinian state in the West Bank and Gaza. Rather than a prisoner of the right, Netanyahu has until now been its most presentable leader.

But the Israeli mainstream is not comfortable clashing with Washington, and Israel's media — and opposition leader Tsipi Livni — are openly challenging Netanyahu's stewardship of the country's most important strategic relationship.

Now, Netanyahu may be moving to reposition himself, or, at least, to rebrand his position. He's likely to make some concessions in easing the siege of Gaza by allowing more goods in to enable a reconstruction that has thus far been prevented by the Israeli blockade. And he'll also likely take down one or two outposts built without permission by Israeli zealots outside of the boundaries of their existing settlements. Such actions will provoke televised clashes between settlers and police, and make the case that Netanyahu is acting on the settlement issue (without necessarily stopping construction within the boundaries of settlements, as demanded by Washington). And he may also ratchet up Israeli operations against Hamas operatives, to remind the U.S. and his own electorate of Israeli security concerns.

In Sunday's speech, reports suggest he'll adopt language compatible with Obama's goals, and even use the term "Palestinian state" as the wrapper for his own, far more restricted conception of Palestinian sovereignty. Israeli reports from sources close to the Prime Minister say the speech, over which he is still consulting allies, will embrace a limited, conditional version of the two-state solution, but will at the same time push back against the call for a settlement freeze. Nobody knows yet exactly what Netanyahu will say in his effort to harmonize his government's positions with Washington's — but it's a safe bet that he won't be threatening America with sanctions.