In a fortnight, Tom Phillips, 60, will be ending his four-year term as British ambassador to Israel. He served here as deputy ambassador in 1990-93, and in between his Israeli posts was head of the Afghanistan and South Asian desk in the British Foreign Office, officer for the Adriatic region during the Kosovo crisis and an adviser in the British embassy in Washington, D.C. This year, Queen Elizabeth II knighted Phillips.

Tom Phillips, Israel is generally seen as a place where there's never a dull moment. From your point of view, was your work here positive or negative?

"Never a dull moment indeed ... When I came back to Israel, it was right in the middle of the 2006 Lebanon war and I arrived to the airport to learn two things. One, they've lost your suitcase (fortunately they found it ); and second, you are going home that evening straight into it, straight into action [for a meeting with Lord Levy, then-prime minister Tony Blair's special emissary to the Middle East].

"We've had several crises and ups and downs during my time here. But I did want to come back to Israel ... because achieving peace here doesn't only matter for Israelis and Palestinians; it also matters for the rest of us as well. We all have a strategic interest in it, so I think for any diplomat, this is bound to be a real moment in one's career, because it matters, because your telegrams are going to be read back in London; your reports matter. So it's been an enormous privilege to have this time here."

After four years' intensive service, your acquaintances say that you are leaving here pessimistic. Is this so?

"I find myself torn between optimism and pessimism about the future. On the pessimism front, when one goes around Israel, but also on the other side of the Green Line, what one picks up is this growing distrust as it is on both sides, and I think also that is a sort of radicalization, people turning towards the extremes, to an extent exacerbated by demographic trends ...

"On the Israeli side, there's obviously the worry that there's no partner, particularly one who would be able to deliver the security aspects of a deal. And I hear, too, Israelis wondering whether [Palestinian Authority] President [Mahmoud] Abbas would be able to accept a two-state solution even if one can be negotiated, and they look back [at] what is seen as Abbas' rejection of Olmert's offer in 2008 ... and they say, will the same thing happen again?

"They look back on the unilateral pullout from Lebanon and Gaza and worry that if they'll pull out from the West Bank, they'll get missiles on Ben-Gurion Airport. And of course in the missile age and with the Iranian/Hezbollah threat, Israelis sound to me actually less secure than they did when I was here in the early 1990s...

"[Palestinians] don't feel they have an Israeli partner who is prepared to strike a meaningful two-state solution or an Israeli government which could deliver one. They see continuing Israeli settlement construction, including during the Oslo Process and beyond, as evidence that the real Israeli agenda remains annexation (ditto as regards the Barrier )...

"But there are very, very strong reasons for optimism. First of all, when I was here in the early 1990s, almost no one was talking about a two-state solution. And if you think about the conceptual leap now, you know, how much design work has been done on what a two-state solution could look like, I think it's very significant...

"And Iran is, from one perspective, a positive, in that Israel and many in the Arab world share the same concerns about the possibility of a nuclear-armed Iran. I think, too, when you look at the long-term trends in the Arab world, you go back to 1967, from the Khartoum "Three Noes" to the Arab Peace Initiative, the Saudi plan, I think that's a real evolution, a positive one...

"And then I think there is also a success story out there on the West Bank ... There's some real work been done on the ground ... and I think there is a good news story out there on the West Bank about the building up of a Palestinian state with which Israel in the long term could live."

Let's add a parenthesis here. You are no doubt aware of the discussion that has arisen, mainly on the Israeli right, about a binational state.

"The demographic factor means that whoever is Israeli prime minister, I think he has to face up to the reality that anything other than a two-state solution represents a threat to the concept of a Jewish state."

Concerning your next mission [as ambassador] in Saudi Arabia. Saudi King Abdullah is the initiator of the famous Arab [Peace] Initiative. On the other hand, a French newspaper published comments made by the same king and according to which there are only two states in the world which do not deserve to exist: Iran and Israel. So you understand this contradiction?

"I think you have to take the Saudi initiative seriously. I mean, it's out there. It was endorsed by the Arab League. It's a very interesting bit of paper ... This is offering the prospect of full normalization to Israel with the Arab world. And I think it's something that needs a lot of thinking about. I know many Israelis worry about is it very prescriptive and exactly what it says about the right of return. But I think those fears, there are answers to them ... As somebody who wants Israel to be accepted and have a secure place in the region, I think the Saudi initiative is a very imaginative piece of diplomacy."

And concerning the latest remarks by the king?

"I don't know. I haven't heard them."

The UK has gained the image [of the] most hostile country in Europe because of its vivid public opinion towards Israel, the various initiatives to boycott Israel, Israeli products and Israeli universities, to arrest Israeli leaders and bring them to trial for presumed war crimes and engage in this process of delegitimization of Israel.

"I do worry that the center of gravity in British (and, indeed, wider opinion ) is moving against Israel, because of the 'occupation' headline and the images that go with it. This is not a problem of hasbara [public relations], but of substance...

"I certainly don't think public opinion is universally hostile... When I've gone back to [the] UK and talked in universities - including some universities, at least, with superficially hostile reputations toward Israel - you can have the debate, you can have the argument. This is not lost there. It is not automatic everything Israel does is wrong."

Up to now, a distinction was made in Israel between British public opinion [which was critical of Israel] and the British government, who were considered rather pro-Israeli. Is this still the case, and does the participation of the Liberal Democrats [who are considered hostile to Israel] in the coalition modify this tradition?

"If you look at what they [the current government] have said in their public statements when coming to power, I think it's a very balanced approach. It's a firm support for a two-state solution. There has been no change in fundamental aspects of policy like that. I think the Israeli government recognizes that our response [to] the Gaza flotilla incident was balanced and fair and so I don't feel there is a particular problem here...

"The UK has been at the forefront at the UN of, I think, four resolutions [on Iran]. I think the Israelis appreciated what we've done."

How about the question of the legislation [that allows the trial of Israelis in Britain]? That was supposed to be modified long ago.

"The Labour government wanted to move, but it had run out of time before the elections; the Conservatives said they would move early on it when they came to power. They have come to power; they are looking at all the options ... I hope in the fairly near future you will see they will be going public on what their proposal poses."