Robert Skidelsky: A peace deal for the whole of the Middle East

There is a balance of power there for the first time since the end of the Ottoman Empire

The endgame is in sight in the Middle East. It has been brought into view by the growing recognition that Syria and Iran have to be involved, not just in negotiating an Iraqi settlement, but in underwriting peace in the Middle East as a whole.

It is increasingly accepted that the American-British-Israeli policy of reshaping the Middle East by military force has failed. The Americans have lacked the strength and the will to subdue Iraq (much less create a democracy there); the Israelis have failed to destroy Hizbollah in the Lebanon (or indeed quell the Palestinian insurgency); the US has failed to stop Iran's nuclear weapons programme.

These policy reverses have knocked on the head the myth of American omnipotence. The US is still the most important actor in the Middle East, but it is not all powerful. The Islamic revolt has created a balance of power in the region for the first time since the collapse of the Ottoman empire. This means that any settlement of the interlocking problems of the Middle East, despite events such as the assassination of Pierre Gemayel in Lebanon, will have to be a negotiated one.

Policy has started to adapt to the new realities. The Baker panel, set up by President Bush following the midterm Congressional elections, is expected to recommend that the US should seek the help of Syria and Iran in ending the bloodbath in Iraq. Tony Blair has been strongly urging this too.

On the other side of the divide, President Mahmoud Ahmadinejad of Iran, exploiting his country's newly-won position as a regional power broker, has invited the presidents of Iraq and Syria to Tehran this week for a summit on Iraq. No doubt their talks will range more widely. If a way could be found of linking up these two initiatives, the way would be opened for that "whole Middle East strategy" of which Blair speaks.

Standing in the way is the Western insistence on attaching preconditions to any talks with "the other side". Iran must give up its nuclear ambitions; Syria and Iran must renounce support for terrorism; the Hamas-led Palestinian Authority must renounce terrorism as well as recognising Israel. This is completely unrealistic.

The renunciations which the West seeks should be part of the bargain eventually struck, not a precondition for talks. I doubt if Bush, Blair,and Olmert have yet accepted the need for a genuinely negotiated agreement. But that is the price they will have to pay for the failure of their policies.

The elements of a "whole Middle East" peace settlement are easy to see, though they will be hard to achieve. These elements include: a federal Iraq, with an agreed formula for sharing out the country's oil resources between the three main provinces; a fully-independent Palestinian state roughly within the 1967 borders, with an internationally-patrolled demilitarised zone along Israel's borders; a phased withdrawal of US forces from the Middle East in return for a guarantee of an uninterrupted oil supply; a nuclear free zone, without which Iran will never give up its nuclear ambitions (but Israel will have to give up its bomb as well); finally, a reactivation of the suspended customs union between Israel and Palestine, with a phased extension to Jordan and the Lebanon, and with a "Marshall Aid"-style programme to get it started, as happened in Europe in 1948.

The idea would be to hold an international conference to strike a grand bargain, once the various sets of separate talks have made sufficient progress. The secretary-general of the United Nations should invite the five permanent members of the Security Council and all the states and power-brokers in, or adjoining, the Middle East to take part in this conference.

The aim would be to achieve a legally binding peace treaty for the region, as an essential building block for an international order fit for our times.

Such ideas may seem crazily unrealistic. But sometimes crazy ideas are the only realistic ones: it is the cautious people who are the real crazies.

The scheme set out here is an attempt to join up initiatives and projects already germinating in a disconnected way. It seeks to take advantage of a moment in time when the United States retains considerable leverage in the Middle East, but not the ability to impose its will.

This is what makes a genuine negotiation and multilateral ownership of a settlement possible. Five years from now the balance will almost certainly have shifted further against the West, with the direst consequences.

The writer is a cross-bench peer and professor of political economy at Warwick University