For three decades, from the early 1970s to the first years of the 21st century, a significant portion of Israel's electorate (though not necessarily a majority) upheld this formula. They argued, often passionately, that the dispute with the Arabs would end when territories won in the 1967 war were conceded to the Palestinians to become the geographic basis of their state.

This viewpoint—the staple of the center-left in Israeli politics—gained the upper hand in the early 1990s, resulting from a confluence of local and global geopolitical factors, including the end of the Cold War, the first Palestinian intifada uprising, and the first Persian Gulf War.

From Israel's viewpoint, the ascendance of the left is the background to the dramatic 1990s Oslo peace process.

As a result of the Oslo initiatives (signed 1993), Israel accepted partial territorial concessions—areas on the West Bank are today under joint security and political control, and the Gaza Strip is controlled by the Palestinians, via Hamas. (Although Israel controls and monitors border crossings into Gaza, as does Egypt on the southern end of the Gaza Strip.)

In many parts of the world, this Oslo peace process rendered the two-state formula a familiar and legitimate concept. And—it is crucial to point out—Israel essentially endorsed this legitimization of the two-state formula. It formally acknowledged the PLO as the authentic representative of the Palestinian people, and then established an array of relations with the apparatus of the embryonic Palestinian state, called the Palestinian National Authority.

The problem is that while the Oslo process dramatically altered the political realities—and the map—of the Israeli-Palestinian dispute, it did not reinforce faith in the viability of the two-state solution as a remedy to a century of violence in the area.

Israel's political left is today in disarray, and very few people mention the "land for peace" formula without feeling a tinge of irony. For many, the formula is regarded with outright derision. That is because a series of territorial concessions made by Israel under the Oslo framework since the early 1990s did the opposite of achieving peace.

Horrific sequences of suicide bombings, and mass Hezbollah katyusha rocket attacks against a million Israeli citizens—Jews and Arabs—in Israel's north are just some of the catastrophes that have ensued since the land for peace formula was validated by the Oslo process.

That returns us to our starting point: the vast majority of Israelis, from the political right, center, and left, were appalled by the images and rhetoric connected to the recent Gaza blockade and flotilla controversy because they view the past generation of international diplomacy conducted under the land for peace formula as a betrayal, or even a semi-deliberate trick.

On the Gaza Strip, Israel did, in fact, sanction the "land for peace" policy. It dismantled all Jewish settlements, and withdrew its armed forces. Thereafter, it was bombed systematically by Hamas.

When it belatedly launched the Cast Lead military operation in winter 2008-09 to end Hamas bombardments, Israel was accused of possible war crimes by the United Nations.

Currently, "Free Gaza" peace activists from Turkey and Europe are attempting to cast themselves in the role of pro-Palestinian counterparts to the Holocaust survivors who tried to run the British blockade in 1947, aboard the famous "Exodus" ship and other vessels, and make a home for themselves in the new Jewish state.

Such comparisons are, to Israelis, invidious, and they completely undermine faith in "land-for-peace" diplomacy. As they see it, their country conceded land, and then received not peace, but rather missile attacks, insulting Holocaust analogies, and shrill war crime accusations.

Jerusalem: Starting Point or Endgame?

Where does this leave the present and near future of the Israeli-Palestinian dispute?

The most immediate, and extremely serious, obstacle impeding hopes for any Obama administration initiative on the Israeli-Palestinian issue derives from tactical mistakes made both by American and Israeli leaders in recent months, particularly on the issue of Jerusalem.

Contrary to much rhetoric and breast-beating around the world, the Jerusalem issue is not insoluble (and the Jewish nationalist movement, Zionism, has displayed rather more flexibility on the issue than many groups around the world, including American Jews, seem to believe).

However, the Obama administration badly miscalculated when it focused earlier this year on Jerusalem as a fulcrum to re-start talks between the sides, and pressure Israel.

Similarly, Israel's government under Prime Minister Benjamin Netanyahu took a number of missteps in past months, providing ammunition to forces around the world that insist on branding various Jerusalem neighborhoods as Israeli "settlements" (like any other "settlement" in the occupied West Bank), a perception that is not shared by the vast majority of Jews who live in Israel.

Neither the most complicated nor least resoluble issue in the Israeli-Palestinian conflict, Jerusalem is, without doubt, the topic that ought to be addressed at the end of a viable peace process. Emotions stirred by the holy city are powerful, and clearly complicate relations between the sides when they are aroused, in the absence of shared commitments to peacemaking.

Jews, of course, regard the city as the sole, unique center of their religious-national tradition, and as the capital of Israel. The right to expand and develop Israel's capital is, for virtually every Jew who lives in the country, assumed to be fundamental and inviolable. This being the perception, very few Israelis would regard the building of a Jerusalem neighborhood on the other side of the 1967 lines as "settlement" activity.

More generally, Israel's settlement movement on the West Bank is an outgrowth of one particular branch of the Jewish nationalist movement, religious Zionism. The religious Zionists conceptualize Israel's right to exist, and (more to the point) its right to various parts of the country, in Biblical terms that are not shared by all Israelis.

In contrast, many Israelis consider themselves heirs to a secular national tradition that conceptualizes the Jewish state in cultural and political terms. These secular Zionist terms do not include a claim of divine right to land. For them, and for many observers both within and outside Israel, the religious Zionist settlement movement remains controversial.

Jerusalem, however, is a consensus issue for all streams of Zionism, whether religious or secular.

Looked at from the Palestinian point of view, Jerusalem is home to hundreds of thousands of Palestinians who see no reason to accept Jewish sensibilities and claims regarding the city. Israelis (and others) sometimes deride Islam's stake in the city, regarding it as "only" the third most important site to Muslims, following Mecca and Medina, but this is hardly a compelling interpretation.

It is unduly dismissive both to the show of devotion which can be seen in Friday prayers on Haram al-Sharif (the Temple Mount), the site of Muhammad's night journey, and also to the enormously powerful role Jerusalem has played as a rallying point of Palestinian national emotion in many turning points of the conflict, from the 1929 uprising to the start of the Second Intifada in 2000.

However one wants to sort out religious sensibilities regarding Jerusalem, it is undeniable that in sections popularly known as the "Eastern" part of the city, hundreds of thousands of Palestinians dwell as a religious-national enclave disconnected in obvious ways from the rest of the city, notwithstanding all of Israel's post-1967 discussion about Jerusalem's unification.

For these Palestinian Jerusalemites, new Jewish neighborhood initiatives sponsored by Israel's government have the same character as settlement construction on the West Bank, since they propose erecting small Jewish enclaves in the middle of a populated Arab area.

In objective fact, some Western reporting about Israeli plans to "plant a Jewish neighborhood in a crowded Palestinian neighborhood" can be misleading and over-stated.

Yet, the important parameter in the dispute is the way the antagonists feel, rather than "plain facts." And it is also the case that ultra-nationalist Jewish groups in Israel would, in the absence of government restraints, pursue aggressive construction plans in ways that would furnish empirical justification of this particular Palestinian concern.

Going Forward toward Peace?

So does all of this history mean that the Israeli-Arab dispute is preordained to flounder because of the Jerusalem (or some other) issue, and the mass of monotheistic tension it can arouse?

One does not have to blindly endorse every move Israel has made in its capital since 1967 to realize that there have been restraints and continuing displays of respect to Muslim and Christian sacred sites—beginning with Defense Minister Moshe Dayan's immediate order to remove Israeli flags from the golden Dome of the Rock, in the climactic moment of the 1967 war.

Apart from security dimensions (that become important on Fridays, during periods of violence), access to the holy sites on Haram al-Sharif is controlled by the Waqf Islamic trust.

Much more important than these daily arrangements (which, I admit, many Palestinians might not consider particularly liberal) is the fact that there is ample historical precedent supporting the possibility that Israel, under the right conditions, could accept some sort of negotiated arrangement on the Jerusalem issue in a peace deal.

As we have seen, before Israel's establishment, a two-state solution was twice proffered under organized international circumstances to the two sides. Under each plan, the 1937 partition proposal offered by the British, and the 1947 UN partition proposal, Israel's presence in Jerusalem was extremely limited—and yet the Zionists accepted both plans.

I bring up these historical examples not as a suggestion that Israelis in 2010 would be willing to surrender sovereignty in their capital—and return to the internationalization schemes for Jerusalem broached by the British and the United Nations before 1948—but rather as a hint that Israeli pragmatic realism can extend to Jerusalem, as it can to any other issue, when circumstances are propitious.

The Obama administration's error in winter-spring 2010 was to expect such pragmatism at a time when years of Hamas terror, Iranian nuclear posturing, and a general lack of political cohesion in the Palestinian Authority have left far too many Israelis scratching their heads in doubt about the viability of diplomatic peacemaking.

The Obama administration has acted like an architecture professor who expects students in a first year class to present designs for a complicated city project whose consummation actually would require years of confidence-building and apprenticeship.

Jerusalem is the endgame issue.

Do all of these considerations point to a bleak, or even apocalyptic, future? Certainly not. While we have in this article focused on stumbling blocks to peace, it is also important to realize that realities in the dispute have changed dramatically in the past two decades, not uniformly in one "bad" or "good" direction.

Less than 20 years ago, Israel viewed the PLO as a terror organization, and punished some of its citizens for initiating talks with PLO members. Today, the most promising discussion route to be pursued by American mediators such as George Mitchell and Hillary Clinton features the Fatah (PLO) regime on the West Bank, controlled by Mahmoud Abbas (Abu Mazen).

In other words, the PLO has transformed from the ultimate enemy of Israel to its most viable possible discussion partner.

Palestinians have experimented with self-rule in the territories for fifteen years, more or less. Those experiments have, admittedly, spawned Hamas militants who are inimically opposed to Israel and to any possible peace process. But it has also entrenched figures like Palestinian Authority Prime Minister Salam Fayyad, who has impressed many Western commentators as a promising player for any future two-state framework.

To my mind, these and many other developments are causes for caution when prognosticating about a dark future for Israeli-Palestinian relations. After all, the Israeli-Palestinian conflict is now about as old as the Cold War was when the Berlin Wall came down, and no one predicted that event.