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It's too soon to talk about a political breakthrough, but the signs are clear: Prime Minister Benjamin Netanyahu is looking to strike a deal with the U.S. administration that will resolve the public dispute between Washington and Jerusalem. U.S. President Barack Obama has exhausted his repertoire of anger at Netanyahu and is now out to rehabilitate U.S.-Israeli relations.

Intensive contacts have been underway for the past few days between the Prime Minister's Bureau and the White House, in an Israeli attempt to get the administration's ultimatum to Netanyahu - centering on the demand to cease construction and the settlement of Jews in East Jerusalem - shelved. Netanyahu is refusing to impose a construction freeze in Jerusalem and has proposed a different political blueprint, and in return the president is sending conciliatory messages to Israel and signaling his desire to end the crisis.

The following are the elements of the emerging deal, culled from public and private comments by senior Israeli and American officials:

* Israel will initiate a new interim agreement in the West Bank, which will lead to the establishment of a Palestinian state within interim borders, in return for deferral of the discussion about the future of Jerusalem. Netanyahu has told the Americans: I would be ready to progress to a final-status agreement, but Palestinian President Mahmoud Abbas is not capable of progressing to such an agreement, and in the end efforts will focus on forging an interim agreement.

The Palestinians are vehemently opposed to an interim agreement, but if they again reject an Israeli initiative that has been welcomed by Obama, they will be perceived as the rejectionist side. Netanyahu will be seen as a statesman who took a political risk, and in the meantime will not be called on to make difficult decisions. He has to take into account, however, that any promise of progress he makes will have to be fulfilled.

* The United States and Israel will identify the areas of disagreement between them. In a talk he delivered on Wednesday to the Washington Institute for Near East Policy, a saliently pro-Israel think tank, the White House national security adviser, Gen. James Jones, stated: "Like any two nations, we will have our disagreements, but we will always resolve them as allies." He also elaborated on what is bothering the administration: "We also continue to call on all sides to avoid provocative actions, including Israeli actions in East Jerusalem and Palestinian incitement."

* Obama will toughen the U.S. line against Iran and Syria, with the aim of preventing Iran from acquiring nuclear weapons and averting a new war in the north, and he will tighten the security ties with Israel. Jones quoted the president: "The United States is determined to prevent Iran from developing nuclear weapons." He spoke with great friendship for Israel and commitment to its security, lauding American cooperation with "my friends in the Israel Defense Forces" and its important contribution to the security of the United States. In displaying readiness to enter into an additional interim agreement and to accept a Palestinian state in temporary borders, Netanyahu is adopting the proposals of Defense Minister Ehud Barak, President Shimon Peres and former defense minister MK Shaul Mofaz (Kadima). However, implementation of such an agreement, even in a limited format, will oblige a further withdrawal, and that might include the evacuation of settlements. In other words, it is likely to thrust Netanyahu into a confrontation with his political partners - both in his party and on the extreme right, who vowed "never again" after the withdrawal from the Gaza Strip.

So far, Netanyahu has sat on the fence. Ministers and advisers, statesmen and commentators have made suggestions, and he has tried to drag out the courtship season for as long as possible. Every choice entails forgoing options and entering into confrontations. But Obama exploited the "Ramat Shlomo crisis" during the visit of Vice President Joe Biden in Jerusalem a month and a half ago, to press Netanyahu to decide. The American message was clear: The price to be paid for peace in the coalition will be a crisis in relations with the United States, just when Israel needs U.S. support against Iran.

Netanyahu decided to accept a certain amount of "self-punishment" that would demonstrate political movement without undercutting sacrosanct right-wing principles such as an "eternal unified Jerusalem." Time is pressing. The settlement construction freeze will end in another five months, and resumption of building without a political process will seriously strain relations with the administration.

Strongman Barak

This was Barak's opportunity. The defense minister has two cards to play: the threat that Labor will bolt the coalition and leave Netanyahu in the hands of the far right and the ultra-Orthodox, and the prime minister's desire to have his former commander in the ultra-elite Sayeret Matkal commando unit by his side in the strategic confrontation with Iran.

Barak shares Netanyahu's disgust with the Palestinian leadership and his assessment that a final-status agreement is not practical. However, in contrast to some other members of the "forum of seven" - ministers Avigdor Lieberman, Moshe Ya'alon and Benny Begin - who are against any movement or compromise, Barak is proposing slow progress and avoidance of confrontations with the United States. The fact that his ideas have been adopted casts Barak as the strongman in the government.

Netanyahu thought that the administration's pressure to stop construction in Jerusalem afforded him an opportunity to muster political support in America. The "leave Israel alone and don't touch Jerusalem" campaign, whose high point was a full-page ad of support by Nobel Peace Prize laureate Elie Wiesel, succeeded in shaking Obama's self-confidence and mitigating the brutal pressure being exerted on Netanyahu. The shift was apparent this week in articles by Aaron Miller and Martin Indyk, members of the Clinton-era "peace team," who cannot be suspected of being fans of either Netanyahu or the Likud.

Miller's article, in the journal Foreign Policy, was trenchant and fascinating. Abjuring his belief in what he called "the false religion of Mideast peace," he related how he had devoted 20 years of his life to advancing an agreement that appeared to be inevitable and irreversible - until he discovered the error of his ways. "Today, I couldn't write those same memos [about the urgency of Arab-Israeli peace] or anything like them with a clear conscience or a straight face," he notes. Miller suggests that Obama take a broader perspective: There are more important issues for America than the Israeli-Palestinian conflict. Afghanistan, for example, Iraq, and of course the confrontation with Iran. Pressuring Israel to make concessions in Jerusalem and on its borders will only push it to take unilateral action vis-a-vis Iran, the veteran diplomat warned.

Netanyahu read the Miller article and felt encouraged: At last, someone in the "peace industry" understands the Israeli appraisal of the situation, and identifies with it. That's a lot more credible and persuasive than another favorable comment on Fox News or an article of support in The Wall Street Journal - the bastions of the American right wing, which attack Obama at every opportunity.

The positive messages from the administration were quick to arrive: a warm congratulatory embrace from the president for Independence Day, Jones' talk at the Washington Institute and the dispatch of White House officials for talks in Jerusalem.

The time has come for the leaders in the region "to demonstrate the courage and leadership" of Anwar Sadat, King Hussein and Yitzhak Rabin, Jones said. Follow in the footsteps of Menachem Begin and Ariel Sharon and prefer America over your right-wing coalition, Indyk urged Netanyahu in The New York Times. The prime minister is not there yet. But he is approaching the moment when he will have to choose a political path and perhaps also translate it into action.