The first anniversary of the third Netanyahu government is hardly a cause for celebration.It is one of the most inactive and paralyzed governments in our history. No achievements to speak of; one failed war, no economic recovery, no democratic legislation and disastrous international relations. And yet it may very well be this government that will have to make one of the most dramatic decisions in our history – in relation to realizing a two-state solution.It is therefore a good idea to take a deeper look at the record of this government, its main players and what makes it tick.The government is a one-man show. Netanyahu is an autocratic and lonely leader, hiding behind thick walls of suspicion. He is the sole decision-maker and is a master in the divide-and-conquer game.Government by Bibi, for Bibi. This government took the form of its leader, suffering from political schizophrenia. In between an aspiring Churchillian leader and a marketing director, a Massachusetts Institute of Technology graduate and a Tea Party advocate, a realist who believes in a two-state solution and a messiah of the settlers, an advocate of open democracy with total intolerance to different and opposing views, a commando officer afraid to take decisions, an extreme capitalist bon vivant with a proletarian constituency, a peace negotiator and a bellicose preacher. Netanyahu is imprisoned in between these contradictions, and so is his paralyzed government.The current government has not moved on major issues, with very few exceptions. The good macro- economic factors (relatively high growth rate) were not translated into social progress. The cost of living is galloping – today it is more expensive to live in Tel Aviv than in Berlin. The inequality between the haves and the have-nots is growing, and we are socially one of the most unjust societies in the West. The number of people beneath the poverty line is at a record high (1.75 million, among whom half are children). The middle class continues to carry the burden of the economy with no hope on the horizon.A strong economy and a weak society are a result of mistaken socioeconomic priorities – too much investment in security and settlements, too little in job creation, housing and social services. Our health system is suffering; “Bibi-care” leads to many sick lacking hospital beds and medications. The West Bank comes before the Negev and the Galilee, the affluent elite before the poor and minorities.These failed economic policies are a recipe for socioeconomic decline and instability. Inequality also characterizes the government’s policies and legislation in relation to civil rights and democracy. While the government passed legislation on a more equal share of carrying the military burden, it has not been implemented. Other legislative efforts by the coalition and its members are often of a discriminatory nature, against the High Court of Justice or the Arab minority. There is governance legislation that looks to strengthen the executive powers, without any real checks and balances, and to make it harder for Arab parties to get elected.The climate in the country is poisoned by an almost violent discourse of a racist nature, by the champions of the Right such as MKs Yariv Levin, Miri Regev and others who see no room for non- Jews in Israel. Most of the right wing of the government is not democratic by nature, seeking to concentrate all powers with the guardians of Greater Israel.The greatest failure of this government is its settlement policy. The expansion of settlements all over the West Bank, announced by the housing minister, is nothing short of a folly. This risks our security as it creates total disbelief among the Palestinians that Israel is a partner to in peace. It isolates us in the rest of the world, most importantly in Europe, including among our best friends, such as Germany. A boycott, not only of settlements but also of Israeli companies that are active beyond the Green Line, is beginning to hurt our companies. We are beginning to pay a high price for this messianic extravaganza. Israel has never been so isolated, and this at a time when economies are more interconnected and interdependent than ever.There are a few positive achievements of this government, especially the reforms in the areas of education and transportation. Shai Piron, one of the few effective ministers, advances significant changes in many aspects of education, such as the reform of the high school matriculation exams. He is exceptional in this government, as he cares more about what he does than how he looks. Also the transportation system is being reformed effectively by Minister Israel Katz, with better linking of the center to the periphery. The much promised and needed housing reform is still awaiting a change in land prices. Cheap housing is to be found only in the settlements.All in all, this is a “so far, so bad” and disappointing government; the big hope of the last elections, Yesh Atid chairman Yair Lapid, has let his constituency down. The winners of this government are Defense Minister Moshe Ya’alon and Economy Minister Naftali Bennett, who eat up the national resources that would have transformed the socioeconomic priorities.The missing link to a change of priorities and policies is a real peace process. Until now the government can at least be commended as for having agreed to be involved in the American-led process.There is no doubt that the most outstanding minister is Tzipi Livni, in her roles as justice minister and chief negotiator with the Palestinians. Yet peace negotiations without decisions on peace are futile. The prime minister is reluctant to take any meaningful decision. Until now he has acted as a politician, not as a statesman. His main goal and achievement is the survival and well-being of his government, not his country.As a result, the only active player in the peace process is the Obama administration. It will, with Secretary of State John Kerry’s framework for future negotiations, force the prime minister to make real choices. The crossroads we are nearing on an American vehicle is between relative peace and intifada and war, between a Jewish democracy and a binational state, a place among the family of nations and a pariah state, between a growing economy and socioeconomic hardship, between Jewish moral values and Jewish racism.The socioeconomic challenges, as well as our democratic identity and systems, depend on the decision on peace. Only if it will be a clear choice that actually leads us toward a realistic and acceptable two-state solution this year, will the economy start to turn around. Investment will grow, tourists will come, and priorities will change. Our European and American partners will increase trade, cooperation and investment. Resources will become available for social services and the middle class. The cost of living will most probably go down; housing will be more affordable, education more available.This, however, will necessitate colossal decisions – a gradual return to the 1967 lines, a shared capital in Jerusalem; in return, stringent security arrangements along the borders and the Jordan River, no right of return, mutual recognition of two nation states, diplomatic relations with the Arab countries, upgraded security cooperation with the United States and the highest non-member EU status. A good deal for Israel as proposed by John Kerry; a very hard choice for Netanyahu. The same is true for Mahmoud Abbas and the Palestinians.Also in his third term Netanyahu is a “yes, but” politician. He most probably will want to say that to Kerry in order to gain more time in futile negotiations.He is an Israeli “third way” politician, with the third route (not yes, not no) leading nowhere.He has every right to say no, refuse the American proposal and pay the international price. He has a duty to say yes and make the historic decision to go to a two-state solution, to pay the price, but mainly to reap the advantages.This would necessitate a fundamental policy reform, if not a personal transformation to free himself from the prison of conflicting interests and views and turn from politician to statesman. It would also lead to a fourth Netanyahu government, without Bennett and with Labor. Even those who oppose him, such as myself, must hope for such a change; a Bibi IV Government supported by most of the country, making peace with independent Palestine.Yet most probably we are stuck with this government, paralyzed by internal contradiction, placing political interests over the country’s destiny and being adverse to the rest of the world. The next weeks will be critical as the government decides, or most probably, as usual, will decides not to decide.The writer is honorary president of the Peres Center for Peace and served as Israel’s chief negotiator for the Oslo Accords.Barbara Hurwitz edited this column.