There is no question that the big picture in Israel is very important. But before we can start to consider the really substantial details of a two-state solution, first we have to get over this hurdle of settlements. And it is disheartening, to say the least, that the initial step is proving so difficult to negotiate.

It's obvious to anyone that a viable peace process has to include the freezing of settlements – as a confidence-building measure in the short term, and to make a Palestinian state viable in the long term. So what does it tell us if such a move is impossible?

To be clear, this latest move is essentially the decision to continue with the construction of 2,500 units already under way, and to supplement those with a few hundred more. The Israelis claim that this is within the understanding they had with Washington about what the freeze would entail.

The Americans' view is rather different, and the White House urged that the settlement expansion stop, calling it illegitimate. But none of us are privy to the conversations behind the scenes, and it is those conversations that hold the key.

The question of whether the US has given its tacit approval to Benjamin Netanyahu's decision is crucial. It gives us a clue as to his real intentions. If Mr Netanyahu is appeasing the right with this move while continuing quiet negotiations, there may yet be hope for a resolution. If, on the other hand, it is the Americans he is bluffing – playing for time by prolonging negotiations, but in reality taking the same view as his most right-wing colleagues – then it's hard to see what progress can be made.

So which is it? It's impossible to know for sure. But, judging by his record, the Israeli Prime Minister doesn't seem to believe in a two-state solution. The onus is on him to prove that he is negotiating in good faith. The settlements are a litmus test for whether he is truly committed to two states. Yesterday's news puts the result of that test in serious doubt.

The author is an Associate Fellow at Chatham House and International Relations Programme Director at Regent's College