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Both the government's support for the referendum law and its proposed new map of the country's national priority zones, which will be brought to the cabinet for approval on Sunday, raise questions about our leadership's national order of priorities. What do economic benefits for 110,000 settlers, most of whom live in dozens of settlements outside the major blocs, have to do with the vision of two states for two peoples? What does a political roadblock in the form of a requirement for either an inflated majority in the Knesset or a referendum have to do with the desire to resume negotiations with the Palestinians and Syrians, which are based on the principle of land for peace?

These two recent moves appear to be an attempt by Prime Minister Benjamin Netanyahu to appease his colleagues in the extremist wings of his Likud party and his coalition, and to compensate the settlers for the limited, temporary freeze on construction in the settlements. As in his previous term, Netanyahu is taking one step forward and then immediately two steps back. The decision to attach a ball and chain to the peace process in the form of a referendum lessens the value of his speech at Bar-Ilan University last June. Encouraging settlement in the heart of the West Bank by giving economic benefits to settlers increases suspicions among both the Arabs and the international community that the settlement freeze was not intended to do anything but repulse pressure from the U.S. administration.

Yuval Diskin, the head of the Shin Bet security service, briefed the inner cabinet on Wednesday about the Palestinian security services' success in reducing terror in the West Bank. But the meager harvest they have reaped from the Oslo process is increasing popular Palestinian support for players such as Hamas, who insist that violence is the way to end the Israeli occupation. These players derive encouragement from every Israeli move that contradicts a solution of dividing the land and recognizing Palestinian rights.

Even the most pragmatic elements of the Palestinian leadership such as Prime Minister Salam Fayyad are losing faith in the possibility of reaching an agreement with Israel through dialogue. At the same time, the referendum law - which has been nicknamed, and not for nothing, the "Law to Safeguard the Golan" - raises doubts about Israel's willingness to pay the price of peace with Syria.

The erosion in this government's credibility regarding the diplomatic process - and in the credibility of each coalition member, including the Labor Party - is exacting a heavy price from Israel on both the domestic and international fronts. The diplomatic vacuum is being filled by Arab and European initiatives designed to advance a unilateral solution to the Israeli-Palestinian conflict. The latest evidence of this is the European Union's decision this week on the status of Jerusalem. And it is doubtful that the United States can for long (or would want to) save Israel from the slippery diplomatic slope onto which it is being dragged.

The prime minister must decide where he is headed: toward an agreement that will assure Israel's future as a Jewish and democratic state, or toward a perpetuation of the occupation at the price of turning Israel into either a binational state or an apartheid one. It is impossible to woo the settlers while seeking a compromise with the Palestinians. The Israeli public has a right to know where its elected leadership is taking it.