Early in his interview with The Jerusalem Post last Thursday, the international Quartet's envoy Tony Blair observed that "you'd be nuts if you were naively optimistic" regarding the chances of a peacemaking breakthrough "after all we've been through over the years." But he then proceeded to sound at least cautiously optimistic about the prospects of precisely such progress on the Israeli-Palestinian front. The new American government was committed from the get-go. Israel had a stable coalition sensibly determined to work "bottom up" as well as "top down." Moves were ongoing to improve the Palestinian economy and security capacity. The ideological gulfs were bridgeable. And Hamas had some hard choices to make. As he said, given "all we've been through over the years," such assessments might sound risibly rosy. But Blair does have his feet on the ground: The central characteristic of his mission has been to concentrate on detail - the advocacy of specific projects to improve day-to-day life in the West Bank, the focus on specific Israeli security concerns. Now, he insisted, Prime Minister Binyamin Netanyahu "certainly can play the role of peacemaker." And the Palestinians were ready "to push ahead on security and capacity." Why might the current constellation of players succeed where Annapolis had failed? Because the region was changing, he said, and the choice, given the rise of Iran, was getting starker - the choice, as he put it, between modernizing or living in the past. The way Blair sees it, we've reached "the moment of truth." Excerpts: We have a new government here and we're hearing about a determination to build from the bottom up with the Palestinians, including assurances that economic projects that had been stymied will now be advanced. There's also a new American presidency that is trying to invigorate the process, and talk of possible new Arab League thinking - though it's not clear how true that is. In contrast to Annapolis, which did not lead to any breakthrough, do you have the sense that there is genuinely a chance now of something substantial changing for the better? The short answer is yes, I do. You'd be nuts if you were naively optimistic after all we've been through over the years. But I do think this is a moment of opportunity. A moment of truth. After many months of semi-paralysis, frankly, for all sorts of reasons, we now have a new American administration that, from the outset, is determined to focus on [this]. We've got a new Israeli government that, at least for the time being, is secure with an empowered prime minister. And I think the Palestinian side of the politics are a little clearer too, in a way. There is a consensus that you have to build from the bottom up as well as negotiate from the top down. That is absolutely the right thing. It's also a moment of decision because once you take the three "headings" - politics, economics and security - you have to put substance into that... Each of these things take decisions... Over the next few months it will become apparent, one way or another, whether the Israelis are really prepared to build from the bottom up, and whether the Palestinians are really prepared to understand that the only state that Israel will tolerate as a Palestinian state is one that is a stable and secure neighbor, and that requires, obviously, decision-making on their part too. I don't know what will come out of the next few weeks, but it seems to me that people are reflecting from the beginning on their policy... I'm confident that people will take the decisions with the right will and intention, that we can move it forward. What do you see as having become clearer on the Palestinian side? For the moment, at any rate, people are going to carry on working with Prime Minister Fayad... I feel the Palestinians themselves are ready now to push ahead on security and capacity. There is a whole set of proposals now on the rule of law for the Palestinians, supported by various parts of the donor community, for things like courts and prisons and the judiciary and the prosecution service and so on, along with further training with [US] Gen. Dayton of the [PA] security forces. So all that is moving along. People are saying to Hamas, "You've got a decision to make." If you want to change and get on board with a two-state solution, that's your decision. If you decide that you won't, that's also your decision, but we want to move ahead. I see the next few weeks as when we try and devise a framework that then takes us forward at least to the end of the year. I don't see the faintest prospect that Hamas is going to accept Israel. Therefore, what's going to happen to Gaza in this kind of framework? It can't be put to one side. We've got to do what we can to help the people there. I am sure from all the contacts I have in Gaza - I mean habitually non-Hamas contacts; people in business and civil society - that if people think there is a serious momentum moving this whole thing forward, the majority of the people in Gaza will want to be part of it. I don't have a doubt about that. So the most important thing is for us to concentrate on getting this thing moving forward. The Israeli government has practical objections to Palestinian statehood. The Israeli prime minister is saying, 'The way the world works, statehood gives you the right to do things that, in the Palestinian case, we would feel threatened by: if they aligned with Iran, if they start importing weaponry...' How serious a problem do you think that is? And on the other side, there's the Palestinian refusal to define Israel as the state of the Jewish people. Are these red herrings, that can be left aside, that won't interfere with an effort to change things, or are these issues that have to be tackled, real problems? If everything is moving forward, these are resolvable issues to the satisfaction of both parties... I always get out a map now when I'm talking about this issue to people in Europe or in America. You get out a map showing the Israel-Palestinian territory. Then you get out a map showing the position of this plot of land amongst the broader region. And you educate people to the fact that, for Israel, you can't contemplate a Palestinian state that is not stable and secure. That's just the way it is. Now, likewise for the Palestinians, they can't contemplate a state if it's separated and broken into little bits, or even big bits. So there is a reality check that you can give people that makes it very obvious that these types of questions, in the end, can be resolved if everything else is moving forward, because the world will be there to resolve it. And actually they're not that hard to repair. Settlement-wise, is it too late for a two-state solution? No, but I do think it's important for Israeli opinion to be sensitive to how seriously people take this issue. People want to be kind of understanding of it on one level, but the fact is that if you're going to negotiate the parameters of statehood in the end, you don't want, on either side, for there to be a situation where the facts on the ground just make it impossible. Now, again, I happen to believe there are ways through that as well... Can you elaborate a little? Provided people understand what the problem is with the settlement issue: It is where the Palestinians see not just the issue of settlements - the concept of land swaps is already there - it's where they see it as effectively breaking up the Palestinian territory. In particular where you've got outposts and so on that then have to be guarded. For example, as I saw when I was down in Hebron recently, it's hard, impossible sometimes, for the Palestinians to develop their own land, whilst they see land being developed around them, actually in contravention sometimes of Israeli law. This will be something to be discussed over the next few weeks and it's probably not sensible to get into all the details, but I personally believe that, again, there are ways around this issue. The answer to your question is no, I don't think it's gone so far that we cannot still have a Palestinian state. But it is important that people are alive to the sensitivity of this, because it will be one major issue that has to be tackled at some point. You met with Netanyahu [on Wednesday]. What's your sense of the degree of sensitivity on settlements? How is he going to reconcile his own ideology, coalition constraints, international interests, the position on the ground and so on? My view is that he most certainly can play the role of peacemaker. He understands that this is going to be a very tough challenge internally and externally. His big preoccupation is the security of Israel. He's very focused, obviously, on the issue of Iran. He also understands - and this is certainly something that I stress constantly to people in Israel, including him - that people like myself are completely sympathetic to the security question. We also believe it is possible, consistent with that and provided the Palestinians adhere to their responsibilities, to give the Palestinians control of their own territory and a state. My view is that he understands that. But, you know, we're at the beginning of this journey. It's for him to speak for himself. The policy review of the Israelis will come out, I assume, in advance of the visit to Washington. I think the bottom-up approach [being advocated by Netanyahu] is absolutely sensible, simultaneous with a political negotiation top-down. You need the two things together... It was actually at my request several years back that the predecessor to Gen. Dayton was first appointed, precisely because after the [Ariel Sharon Temple Mount] visit [in 2000] and after the [second] intifada had broken out, and all the troubles and so on, and particularly what I saw in and around the disengagement from Gaza, I suddenly understand what the Israel problem was. It wasn't actually about a negotiation over territory per se, it was really about a fear over the nature of the state that would be created. From that moment on, I really focused on [trying improve the security] capacity of the Palestinian side and economic development of the Palestinian side - giving people a stake in the future, but also understanding that in this small territory you simply cannot have a situation where you've got gangs of militia and allies of Iran in charge. You can't. You can't. I wouldn't stand for that if I was Israel. There is a way of Israel making its case, which is both to explain their genuine security concern and how the nature of a Palestinian state dramatically affects that concern, provided that at the same time, they are prepared to help the Palestinians and empower the ones who really do want to take the right decisions and make progress. Will there be more money now for the Dayton program of training Palestinian security forces? Yes. It's not a problem getting money either for the European support on [building institutions for the Palestinian] rule of law, or for Gen. Dayton's mission. It's important that Prime Minister Fayad is there, but there's little doubt in my mind that the Americans will support this... Israel had a government that pushed for an accord and couldn't reach it. What lessons should be learned from the failure of Annapolis? On Annapolis, they did get into the detail, and they did get further than people think. But if you put all your eggs in the top-down basket, it won't work. What is required for an agreement to happen? The agreement must pass a minimum credibility threshold on the ground. In other words, if Israel cannot see that the Palestinians could possibly handle their security, Israel is not going to agree. Whatever the detail of why they don't agree, they're not going to agree. Likewise, if the Palestinians think, here we are, we're going to be asked to make serious compromises on things like refugees - which goes back a long way into their history - if the facts on the ground make them think that the occupation, as they see it, is not going to end, they're not going to make these concessions. My point all the way through is that you've got to have the top-down and the bottom-up going together. The problem has been that the relationship between those two things has not been properly understood. In particular, we have not understood the essential nature of capacity building on the Palestinian side. The key to understanding a state is that states are not about maps. States are about institutions. They're about governing capacity. They're about what actually happens within that defined territory. You can have a map with a border that isn't what I would recognize as a state in any functioning sense. That's my reason why I don't think [Annapolis] worked in the end. I'm prepared to really give the new [Israeli] government a chance on this [because]... I've found people now willing in the new government to sit down. I mean, the prime minister [on Wednesday] announced this committee [that Netanyahu is heading to develop the Palestinian economy and improve the quality of life in the PA]. That's what I want... People have been saying to me in the last year, why are you bothered about such and such a checkpoint or whether there's a bit of agri-industrial thing around Jericho. And I say, because it matters. The detail on the ground really matters. Just supposing you've [created the conditions] in the Jericho area to exploit the [tourism] potential it has got. You're creating a whole set of stake-holders who, when it comes to those difficult concessions, are going to say, "We want the state." They are then believing in a reality, not a shibboleth... And yet there are ideological positions that couldn't be reconciled last time. Do you think these current players - Abbas and Fayad, and Netanyahu and his coalition - can reconcile the ideological gulfs? Yes I do. The world is different. There is another issue that is the focus of attention: not just Iran, but the whole [question] of does this region modernize or does this region stay in the past? Not staying in the past, one part of that, is two peoples living together here in this small bit of territory, when if they did live together in peace they could make it into, obviously, a highly successful and vibrant part of the world. The state of Israel is an extraordinary creation in a way. The way that Israelis did that - created and built it - is not a bad model in many ways. Israel says you have to stop Iran. Hillary Clinton says you have to move forward on the Palestinian track. How should this tie together? It's all part of one issue, which is: Do we move forward in peaceful coexistence? Different cultures, different faiths. That's the only way the modern world works, given the power of globalization. It's important that Israel gets its security, that the Palestinians get the justice of statehood, and it's important that Iran does not get a nuclear weapons capability. We're going to have to move on all fronts. And how much time is there left on Iran? It's difficult to judge. We are far more likely to avoid confrontation if we are absolutely clear and plain right from the beginning, with no ambiguity, that they cannot have a nuclear weapons capability.