The Wall Street Journal accuses the Obama administration of creating a diplomatic crisis with Israel for no good reason:
As for the West Bank settlements, it is increasingly difficult to argue that their existence is the key obstacle to a peace deal with the Palestinians. Israel withdrew all of its settlements from Gaza in 2005, only to see the Strip transform itself into a Hamas statelet and a base for continuous rocket fire against Israeli civilians.
Israeli anxieties about America's role as an honest broker in any diplomacy won't be assuaged by the Administration's neuralgia over this particular housing project, which falls within Jerusalem's municipal boundaries and can only be described as a "settlement" in the maximalist terms defined by the Palestinians. Any realistic peace deal will have to include a readjustment of the 1967 borders and an exchange of territory, a point formally recognized by the Bush Administration prior to Israel's withdrawal from Gaza. If the Obama Administration opts to transform itself, as the Europeans have, into another set of lawyers for the Palestinians, it will find Israeli concessions increasingly hard to come by.
No, the settlements aren't "the" key obstacle to peace. But they are an obstacle to peace. And with the most moderate Palestinian leadership in the West Bank in history, provocative moves like the one Netanyahu's government undertook appear designed to undercut progress toward a peace agreement.
The Journal is right that any realistic peace deal will have to readjust the 1967 borders. But the readjustment works both ways. And you're never going to be able to get a stable Palestinian government that can maintain or even reach a peace agreement without some kind of claim to shared control over Jerusalem -- not the pre-1967 split, but something. That's why continued expansion in east Jerusalem is so problematic. The notion that this administration is adopting a European-like posture is absurd -- nobody has proposed eliminating or even fundamentally altering American aid and diplomatic support for Israel.
This editorial in Ha'aretz gets it about right:
There is one reason for the crisis: Netanyahu's persistence in continuing construction in East Jerusalem, in placing Jews in Arab neighborhoods and evicting Palestinians from their homes in the city. This is not a matter of timing but substance. Despite repeated warnings and bitter experiences, he stokes the flames over the conflict's most sensitive issue and is bound to get himself in trouble. Netanyahu has made it clear by his actions that American support for Israel, especially essential now in light of the Iranian threat, is less important to him than the chance to put another few Jews in the Sheikh Jarrah or Ramat Shlomo neighborhoods. Even if Netanyahu's adversaries in the U.S. administration have exploited his misstep to push him into a corner, as his "associates" will certainly argue, a statesman as experienced as he should have been especially careful.