Paul Vallely: Obama's Middle East challenge

The President's call to Palestinian and Israeli leaders to co-operate may be overtaken by the action of the people

Contiguous. Now there's an interesting word. You had to read between the lines to understand Barack Obama's new vision for the Middle East. The American president began with an apologia designed to make some kind of coherent sense out Washington's utterly inconsistent attitudes to the uprisings in the different countries of the Arab world. He could not, of course, because the economic interest and political values of the United States are in a permanent rictus of contradiction.

Washington is very keen on freedom and democracy, but it is also rather enthusiastic about protecting US oil supplies and political stability in the region they come from. Hence Obama's somewhat tardy embrace of rebellion in Egypt, but his extreme reluctance to back rebels in Bahrain. And he didn't even mention Saudi Arabia.

What he had to say on the conflict at the core of the Middle East's political instability was more interesting. There would be no peace between Israel and the Palestinians until a deal could be agreed that would accommodate a separate state for each. That would best be done by working from the borders Israel had before seizing Jerusalem, the West Bank and the Gaza Strip in the Six Day War in 1967. Parcels of land should then be swapped to ensure secure borders for Israel and a viable "sovereign and contiguous Palestinian state".

Once borders and security were sorted, Obama said, the two sides could negotiate on the more emotionally charged subjects, such as control of Jerusalem and whether Palestinian refugees driven from their homes should have the right to return. But first, both sides must agree on that contiguous state.

According to that great American lexicographical stalwart Webster's Dictionary contiguous means "touching or connected throughout in an unbroken sequence". Given that Gaza and the West Bank are 30 miles apart, with a swathe of Israel between, Obama's contiguity has set minds racing. That couldn't just mean a linking corridor, could it?

Adding to the speculation he continued: "The United States believes that negotiations should result in two states, with permanent Palestinian borders with Israel, Jordan, and Egypt, and permanent Israeli borders with Palestine."

How does that square with the pre-1967 borders? Was the President implying that the new improved Israel will border neither Jordan nor Egypt, as it does now? Would Palestine's contiguous territory come at the expense of Israel's? Would Israel get the Gaza Strip and the Mediterranean and Palestine get the Negev and a Red Sea port?

The Israeli prime minister, Binyamin Netanyahu, was incandescent, particularly as the White House did not run the speech past him in advance as it normally does. He only has himself to blame. After a good start with Obama he set up the President's first foreign policy humiliation by refusing to stop building Israeli settlements on Palestinian land. Next he embarrassed the US Vice-President Joe Biden as he visited Jerusalem. Then, on the eve of his last visit to the White House he delivered a defiant speech to a pro-Israel lobbying group. This time he got Republican leaders to invite him to address a joint meeting of Congress next week – a move widely interpreted as an attempt to limit the options for Obama, whose speech on Thursday was timed to pre-empt further Netanyahu shenanigans.

But Netanyahu has also been out-manoeuvred by the Palestinians. Having concluded that he is not serious about negotiations, they have chosen another route. In September, they will ask the UN General Assembly to recognise the West Bank, Gaza and east Jerusalem as an independent state.

Obama in his speech warned the Palestinians to drop the idea, but he did not seem to mean what he said. (Similarly, for all his condemnations of oppression in Syria, the signs are that Washington has decided it is better-the-devil-you-know with President Assad, as in Bahrain and Saudi.)

Having made no progress on Palestine since he took office, Obama has decided that Netanyahu will never make the kind of concessions needed for a peace deal. He does not trust the Israeli leader and knows he is in hock to right-wingers even more extreme than him. For Netanyahu to negotiate from 1967 borders would bring the collapse of his coalition.

But what helps at home in Jerusalem is working the other way abroad. The Palestinians are building support in the UN. It is likely that the leading European powers, including Britain, will back them because they see no other progress on peace. The Palestinian state looks set to get more than two-thirds of the vote in the UN General Assembly, where the US does not have veto power. That would leave Netanyahu and his "unshakeable" American ally isolated. Netanyahu's Israel, in the words of the Zionist historian Zeev Sternhell, is on the way to becoming a pariah state.

Europe has the opportunity to exert influence here. Having backed the Obama call for a deal based on the 1967 border, plus mutually-agreed swaps, the British Foreign Secretary, William Hague, and his European counterparts, could bring pressure to bear on the Jerusalem and right-to-return issues. Since Jerusalem is a holy city to all three Abrahamic religions compromise on the idea of shared jurisdiction is something the Israelis should be pressed to accept.

Likewise the Palestinians should face the fact that, once they have a viable state of their own, demands for refugees to return risks undermining the two-state solution and Israelis' majority inclination for a "homeland for the Jewish people". The right of return could become an obverse of the right of Israel to exist.

Both Israel and America need also to accept that the agreement of the two main Palestinian factions, Hamas and Fatah, to create a single unified Palestinian government is not a hindrance to peace but a sine qua non. The history of many conflicts show, as in Ireland, that it is only when the hardliners are involved that peace can be properly negotiated. Hamas would have to renounce terrorism and acknowledge Israel's right to exist. Europe can play a role in brokering concessions on all sides.

Paradoxically, Israel's best strategy in the current situation might be not to resist the Palestinian bid for UN recognition, says Carlo Strenger, a psychoanalyst at Tel Aviv University who is a member of the Monitoring Panel on Terrorism of the World Federation of Scientists. Rather Israel should back it – but with the quid pro quo that the Palestinians must renounce the right to return to Israel, a demand likely to be endorsed by the international community including the Arab League.

All that could be a long game, for all sides. But hundreds of Palestinian refugees simultaneously stormed Israel's frontiers with Lebanon, Syria, the West Bank and the Gaza Strip last weekend. If those hundreds turn to thousands – or tens of thousands in this Arab spring – then time may be the one commodity political leaders find they no longer have.