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WASHINGTON - The announcement of a moratorium on building in the settlements ends the first chapter of U.S.-Israel relations during the Obama era. There are lessons for all.

The move by Prime Minister Benjamin Netanyahu is clearly a bid to improve U.S.-Israel relations as much as it is an effort to restart negotiations with the Palestinians. It may also be a counterbalance toward Palestinian President Mahmoud Abbas, against a potential prisoner swap with Hamas for Gilad Shalit.

Much of this year has been defined by the friction over settlements, which have cast a shadow. The Obama administration feels it does not always receive credit from Israel regarding close bilateral consultations on a range of issues including the Iranian nuclear threat, the Operation Juniper Cobra military exercise and the Goldstone report.

There were profound implications for the United States in setting the bar high on the settlement issue by calling for a construction freeze rather than merely no outward expansion of settlements. One lesson is that even if the Israeli opposition cannot say "yes" to Barack Obama, the United States has lost mainstream Israelis.

A second lesson is that caution is required in raising expectations. Abbas cannot be less Palestinian than the United States. So if the U.S. demands a freeze, Abbas is boxed in and not likely to agree to less. This pattern will likely repeat itself. With the United States calling for a freeze on Jewish construction in East Jerusalem, Abbas is not likely to accept less - such as no outward expansion of East Jerusalem Jewish neighborhoods.

There are also lessons for Israel. Trust at the top is indispensable. Obama and Netanyahu will both be around for some time. Israelis have bemoaned the lack of trust between the two. Israel believes it was ambushed on the issue of a settlement freeze. On the one hand, Israel is correct in claiming that the Obama administration erred by denying the verbal understanding between the U.S. and Israel in 2003 on defining the geographic expansion of settlements. This undermines the prospect of future verbal understandings with the United States.

On the other hand, trust goes both ways. Israel does not emphasize the fact that it never implemented the West Bank understanding of 2003 that it now declares to be key. Moreover, the Obama administration resented comments by Foreign Minister Avigdor Lieberman after the United States agreed to compromise with Israel over settlements that Washington interpreted as gloating. Obama was surprised by the announcement of new construction in the Jerusalem neighborhood of Gilo since it came just a week after a rare tete-a-tete with Netanyahu. Netanyahu insists that he is transparent but was also surprised by the Israeli bureaucratic move from below. However, the action provided fodder to Netanyahu's critics while undercutting those wishing to give him the benefit of the doubt.

Aides of Netanyahu are correct that the United States was not as stringent with Olmert as with this government. While it is partially attributed to the change in the U.S. administration, one cannot rule out the possibility that the lack of U.S. internal debate in the past was due to the certainty of Olmert's direction. Netanyahu hopes his current move on settlements will put to rest the issue of intentions. He feels he has been unfairly singled out by this administration, given his support for a Palestinian state and for the dismantling of most West Bank checkpoints. Some in Washington may quietly say that Netanyahu's concessions are grudging and extended over many months and therefore can be discounted. Netanyahu's rejoinder will be that belated Israeli concessions are better than no concessions from the Arab side.

Indeed, there are lessons for Arabs, too. Despite Obama's speech in Cairo, which raised expectations, the long-standing Arab dream of the United States bending Israel to its will did not materialize.

Therefore, the Arabs need to act to avert radicalization. In their anger at not getting a 100 percent freeze from Israel, they want to give nothing for now. Yes, they will likely restart multilateral talks on issues such as water, but only after Israeli-Palestinian negotiations are underway. As in the past the Arab states believe in never making early moves that could provide political cover for the Palestinians to make progress, preferring instead, at best, to ride on the Palestinians' coattails. The Arab states need to contribute their share to ensure that Netanyahu's gesture is not lost. They need to provide Abbas with political cover and declare their unambiguous support for peace negotiations now between Israel and the Palestinians.

The writer, senior fellow and director of the Project on the Middle East Peace Process at the Washington Institute, is co-author with Dennis Ross of the new book "Myths, Illusions and Peace" (Viking/Penguin, 2009).