Peace talks could be delayed for a year, warns Israel

Drop 'illogical' demands or we walk away, Netanyahu tells Palestinian leadership

An unyielding Benjamin Netanyahu held a 90-minute meeting with Barack Obama at the White House last night as the US intensified pressure on the Israeli Prime Minister to rein in settlements in disputed East Jerusalem. But, in talks earlier in the day with Congressional leaders on Capitol Hill, Mr Netanyahu warned that peace negotiations could be delayed another year unless the Palestinians dropped their "illogical and unreasonable" demand for a full settlement freeze, according to his spokesman.

Unusually, the White House session was closed to reporters – ostensibly in order not to distract attention from the central event of the day, Mr Obama's signature of the historic healthcare reform bill. But, by not holding a press conference, or even allowing a few journalists into the Oval Office for the customary impromptu questions, the White House has avoided a public airing at the highest level of the continuing disagreement between the two close allies.

Oddly, it was thanks to the healthcare battle on Capitol Hill that the meeting took place at all. Originally the President was to have been in Australia and New Zealand this week. After calling off that trip to help round up the last few needed votes, Mr Obama had little alternative than to fit Mr Netanyahu into his schedule. Not to have done so would have been seen as a deliberate snub that would have escalated the public row – something both sides are trying not to do.

Nonetheless, Mr Netanyahu's address to the Jewish lobby group, the American Israel Public Affairs Committee (AIPAC), on Monday left no doubt that they are still far apart, for all the mutual assurances of support. After Hillary Clinton, the Secretary of State, had scolded Israel for not curbing its building programme, the Prime Minister declared that Israel would press ahead regardless.

"The Jewish people were building Jerusalem 3,000 years ago, and the Jewish people are building Jerusalem today. Jerusalem is not a settlement – it's our capital," Mr Netanyahu said, earning a standing ovation that contrasted starkly with the polite near-silence in which Mrs Clinton's strictures were heard.

But, once outside the friendly confines of AIPAC, the pressure on the Prime Minister here has been unrelenting. His meeting with Mr Obama was the first between the two men since Israel announced its plan to build 1,600 housing units in East Jerusalem at the very moment Vice-President Joe Biden was in the country, triggering the sharpest disagreement between the two countries in decades.

Since then both sides have tried to ease tensions, with Mrs Clinton proclaiming America's "rock-solid and unwavering" support for the Jewish state. Both have stressed their common determination to prevent Iran gaining nuclear weapons, and Israel says it is ready to restart talks with the Palestinians.

Israeli officials say moreover that, if they go ahead, these "proximity talks", mediated by George Mitchell, the US Middle East envoy, would tackle core issues like borders, the status of Jerusalem, which both sides claim as their capital, and the right of return of Palestinian refugees. The home-building programme in East Jerusalem, Mr Netanyahu insisted to AIPAC, "in no way precludes the possibility of a two-state solution".

Behind the scenes, separate talks at the State Department will have surely seen further demands by Mrs Clinton for curbs on settlements. Mr Biden was expected to do the same at a dinner with the Prime Minister.

Britain turned the screw on Mr Netanyahu further by choosing this moment to announce it is expelling a diplomat from Israel's London embassy over the cloned British passports used by suspected Mossad agents in the assassination of a senior Hamas leader in Dubai.

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