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Last week's meetings in Jerusalem between top US and Israeli officials significantly improved the atmosphere in the Israeli-US relationship, even though Israel made clear that zero construction in the settlements over an extended period of time is not a sustainable option, The Jerusalem Post has learned.
Part of the problem, the Post learned, is that Israel cannot agree to a settlement freeze without having "an exit strategy" for renewing construction if the diplomatic process a freeze is meant to promote runs aground.
Another open question is what the country's settlement policy would be after any temporary moratorium ended, since the government has made clear it needs to ensure that "normal life" in the settlements will continue, and that it has no intention of simply "drying out" these communities.
Israel argued that while it was trying to be helpful in getting the diplomatic process restarted - and in fact no new housing tenders in the settlements have been issued since Binyamin Netanyahu became prime minister on March 31 - there are basic needs in the settlements that have to be met.
In recent weeks there has been a concerted effort by both governments to tamp down the tone of the discussion on the issue.
There is a sense in Jerusalem that while a compromise formula could still be reached with the US, there might not be a "magic bullet" that could resolve the problem. Nonetheless, Israel is still optimistic that a political process with the Palestinians could begin even within the context of some remaining disagreement with the US over the settlement issue.
Part of the dilemma in moving forward is how to reach an understanding on the settlements that is sustainable in Israel, and which at the same time would enable President Barack Obama to maintain credibility in the Arab world, given his previous call for a total freeze. While it is also important for Israel - not only the US - for Obama to have credibility with the Arabs, Jerusalem does not want to be the "sucker," the only party giving something concrete to resume negotiations.
Israeli officials have indicated that the government's flexibility on the settlement issue could be greater in the context of the Arab states moving toward normalization gestures toward Israel.
These officials said that while Israel appreciated the Bahraini crown prince's recent op-ed in The Washington Post calling for the Arab world to open up a dialogue with the Israeli public, the Saudis really held the key to normalization and they could potentially be the "game changer."
Meanwhile, US Mideast envoy George Mitchell said in an interview published on Sunday in The New York Times that he believed people were misinterpreting the Obama administration's pressure on Israel as well as the Arab response to Washington's regional peace push.
"One of the public misimpressions is that it's all been about settlements," Mitchell said. "It is completely inaccurate to portray this as, 'We're only asking the Israelis to do things.' We are asking everybody to do things."
Despite Saudi Foreign Minister Prince Saud al-Faisal's recent rejection of American calls for gestures toward Israel, Mitchell said that Arab countries, including Saudi Arabia, had not actually rebuffed Obama's request.
"We've gotten, over all, a very good response, a desire to act, some public statements to that effect from the crown prince of Bahrain, the president of Egypt," said Mitchell.
Even the Saudis, he said, "want to be helpful. They, like everyone we're talking to, want a peace agreement that will lay the foundation for the end of this conflict. I truly believe that's what they want."
He said that even if Obama managed to reach an agreement with Israel to freeze settlement construction, the deal would likely not be one that "everyone is going to stand up and cheer about."
"The question is, 'Will it be substantial? Will it be meaningful? Will it enable us to achieve what is, after all, the overall objective?'" Mitchell said. "The phase we're now engaged in is a means to an end; it is not an end in itself. The end is getting a peace agreement."