Donald Macintyre: Will Israeli PM's reference to the 'S' word spell peace?

For the first time in his long political career Benjamin Netanyahu managed to say "Palestinian state". That much is a result for Barack Obama, despite the qualifications that came with it.

As the US President most eager since Jimmy Carter to make progress in the Middle East from day one of entering office, he found himself, by a painful historical irony, faced with an Israeli Prime Minister who did not, unlike his three predecessors, even accept a theory the notion of a two-state solution. On this Mr Netanyahu has bowed to the inevitable.

But the US President will have to be a man determined to see the glass half-full rather than half-empty to be satisfied with this. For it was – apart from lavish but very general expressions of support for Mr Obama's desire for a comprehensive regional peace – about all that Mr Netanyahu conceded last night. Palestinian leaders will not, for example, like his ringing promise that Jerusalem would remain the undivided capital of Israel.

The optimists will say that other leaders – like his own defence minister Ehud Barak, who was prime minister at the time of the Camp David summit – said that as well, but then went on to countenance a division. However, what even the most panglossian Middle East watchers in Washington will not be able to dance around is the Israeli Prime Minister's clear rejection of Mr Obama's call for a total halt to settlement construction which the Palestinian leadership in Ramallah – and it seems the Americans – regard as an essential sign of negotiating good faith.

It also remains to be seen whether the language in which Mr Netanyahu cast his supposed conversion to the idea of a Palestinian state will be an obstacle to the early negotiations between the Palestinians' moderate West Bank leadership and Israel that Washington appears to want. So far the Palestinians' approach has been that having long agreed to recognise Israel, they are under no obligation to adhere to another – relatively new – condition, that it must be recognised as a specifically Jewish state.

Mr Netanyahu did not spell out in much detail what his insistence on demilitarisation would mean – for example whether it would leave Israel in control of a future Palestine's eastern border with Jordan. There will certainly be some in his party who will hope that all this will be enough to prevent talks from starting.

A right-wing Israeli government is not, of course, the only obstacle to peace. The deeply dysfunctional split in the Palestinian national movement, which has left Hamas in control of Gaza and Mahmoud Abbas ruling over only the West Bank is another – especially as hopes of real progress in the Egyptian-brokered attempts to reconcile the two factions remain far from realisation. But Mr Obama seems to have staked considerable credibility on the idea that it is still worth having talks between Israel and Mr Abbas, giving Palestinians in Gaza as well as the West Bank a new political horizon to look to.

Mr Netanyahu's embrace, if that is the word, of a Palestinian state takes Israel back to where it was before he took office. The president he is dealing with, however, is very different from George Bush. The question now is whether Barack Obama has the energy and focus – especially with all the other issues pressing in on him – to confront the present Israeli government with the kind of pressure that would force it to see it his way or risk its own demise.