Last week Mr Netanyahu made clear that he had different ideas. He said that the Palestinians would get 45-50 per cent of the West Bank, not the 90 per cent that they had expected. The future of Israeli settlements and Jerusalem had been left to the last stage of the peace talks, because the issues were so divisive. But here was Mr Netanyahu claiming that he had the right unilaterally to establish a Jewish settlement at Har Homa, on land captured in the Six Day War, without consulting Palestinians or anybody else.
Since the yellow Israeli bulldozers started working at Har Homa a week ago there has been an almost military exactness in the way violence between Israel and the Palestinians has escalated every day. At first there were peaceful demonstrations by Palestinians on neighbouring hilltops. Then there was a small riot in Bethlehem, with boys throwing stones and Israelis firing tear gas grenades. On Friday there was a much more vicious riot in Hebron and, at around lunch time, a man walked into the Apropo cafe in Tel Aviv and, in the first suicide attack in a year, blew himself up, killing three women and wounding 61 people.
The government holds Yasser Arafat, the Palestinian leader, responsible. General Amnon Lipkin-Shahak, the army chief of staff, directly accused him of covertly supporting the bombing and the riots. He said: "The terrorist organisations still have a green light from Arafat to carry out attacks. Palestinian security services haven't been co-operating with Israeli security." He said he expected more attacks.
The Palestinian leaders immediately said that the Israelis were confusing cause and effect. Har Homa had created the climate of violence in which the suicide bomber had returned. They said that their security services were not a client militia, at Israel's beck and call. The message was that Mr Arafat is not going to restrain Hamas or other militant Islamic organisations unless there is a quid pro quo. This probably means that Mr Arafat wants from Mr Netanyahu what he would have got if Labour had won the last election: almost all the West Bank, and a compromise on Jerusalem.
In one sense Mr Netanyahu and his military commanders are right. On his return from the US two weeks ago Mr Arafat had a meeting with the leaders of Hamas in Gaza. They asked for the release of their members who were in jail (at the height of the clamp-down on Hamas last year Mr Arafat had 1,200 of its members in prison). Infuriated by Har Homa, he agreed. The Palestinian leader must have known what the likely consequences of this were going to be.
On the other hand, he did not have much choice. Mr Arafat's ability to survive political disasters is due to the fact that he never moves far from the mainstream of Palestinian public opinion. Over the last year there were no suicide attacks for two reasons: Hamas was savagely repressed by Mr Arafat's security men, and ordinary Palestinians were against more bombs. After Har Homa this changed. Danny Rubenstein, an acute observer of Palestinian politics for the daily Haaretz, says: "It wasn't Arafat who gave Hamas the green light, but the broad public in the West Bank and Gaza, which urged Hamas to take action."
This means that the Palestinian leader's position is stronger than it looks. If anything goes wrong - and Gaza and the West Bank are currently sealed off by Israel, crippling their economies - then it will be because of policies that most Palestinians supported. Mr Arafat's position is also sustained by a certain balance of power, though deeply unstable, between Israel and the Palestinians. Israel clearly has military superiority, but after the start of the Intifada in 1987 it had difficulty in holding on to the occupied territories in the face of Palestinian resistance. Israeli desire to end this confrontation produced the Oslo accords.
Once its troops had left most of Gaza and the main population centres of the West Bank in 1994-95, Israel had no choice but to rely on Mr Arafat for its security. The only alternative would be to reinvade the Palestinian enclaves. But this would mean a much wider war, with heavy Israeli casualties. There is no consensus for such a prolonged confrontation in Israel. Mr Netanyahu did not win the election last year by promising to tear up Oslo. Instead his winning slogan was "peace with security", and a pledge to voters that this could be achieved without substantial territorial concessions to the Palestinians.
Many of Mr Netanyahu's problems stem from his attempt to deliver on his electoral promises. He says that he will not accept a Palestinian state, but envisages something more on the lines of Andorra (this ignores the fact that Mr Arafat already has 40,000 men under arms). This Palestinian state of Andorra will be a peculiar place, capable of stopping everybody from Hamas suicide bombers to rioting schoolboys, but otherwise happy to exist within the boundaries of impoverished cantons, bisected by Israeli settlements and roads.
The previous Israeli government realised that they could not have their cake and eat it. Mr Arafat was never going to be their tame policeman. Nor would he have lived very long if he had tried. Optimists in Jerusalem comfort themselves with the thought that Mr Netanyahu has no alternative to Oslo. They are probably right, but there is little sign that he knows that. Instead he has stopped the peace process at a fatal half-way house so neither Israel nor the Palestinians fully control the West Bank. And as friction between the two increases, the way has inevitably opened for the return of the suicide bomber.