Netanyahu to approve new West Bank homes in a snub to Obama.

Netanyahu promised recently that progress between Israel and the Palestinians would "confound cynics and surprise the world." I admitted at the time that I was one of the cynics but was willing - nay, eager - to be confounded.

And then I wake this morning to read this:

The White House issued a stinging rebuke to Israel last night over plans to approve the construction of hundreds of new homes for Jewish settlers in the occupied West Bank.

The decision comes as a major setback to Barack Obama's efforts to revive the moribund Middle East peace process. It was revealed by aides to Prime Minister Benjamin Netanyahu yesterday, who said he wants approval for the new construction to proceed before agreeing to any freeze on settlements. A complete freeze is the Palestinian precondition for the resumption of direct peace negotiations.

"As the President has said before, the US does not accept the legitimacy of continued settlement expansion and we urge that it stop," said White House spokesman Robert Gibbs. "We are working to create a climate in which negotiations can take place, and such actions make it harder to create such a climate."

Up until now Netanyahu has pretended that what he is talking about is "natural growth" and he has spoken of families building extensions to their homes, etc, adding the odd room here and there. I didn't buy that theory even when he put it those terms, but he is now talking about building hundreds of new homes on Palestinian territory. And he is doing so at the precise moment when the President of the United States has told him that settlement building must stop.

The strongly-worded statement suggests that a serious rift remains between Israel and the US on the best way to proceed with the peace process. Mr Netanyahu's decision apparently reflects a commitment to expanding Israel's borders at the expense of a viable Palestinian state, as well as showing a desire to appease the increasingly vocal far-right, pro-settler politicians within his Likud party. It could also proceed from a belief that the Obama administration lacks the will or desire to compel him into observing the complete freeze on settlements demanded by the 2003 "roadmap".

Netanyahu is testing Obama. It's what Likud leaders do. Obama has made a grave error in leaving any room for manoeuvre here. Netanyahu will now test him to the limit to see just how far he can push this.

And look at what Netanyahu is offering should Obama allow him to go ahead:

A Netanyahu aide said that, after the new construction is approved, Mr Netanyahu would be prepared to consider a freeze lasting a few months.

Netanyahu is playing with Obama here. He's acting as if settlement building is his right and that it is something which he will offer to stop only for the briefest periods of time, having extracted the maximum he can possibly get in the process. Obama needs to draw a line in the sand here. Settlement building is illegal under international law. It is not something which can be open to any form of negotiation.

Advisers to Mr Abbas yesterday insisted there would be no return to peace talks unless a total freeze was declared, lasting until a peace agreement is reached. Nabil Shaath, a former Palestinian foreign minister, said bitter experience of negotiations with Israel showed there is no other way. "We've seen galloping settlement activity during the negotiations. The negotiations are supposed to be on the basis of land for peace, but the land is vanishing under our feet."

Netanyahu is not serious about peace, he never has been. He wants Palestinian land. Obama needs to make it perfectly clear to Netanyahu that the days when the Israelis could freely steal Palestinian land are over.

The political scientist Galia Golan said Mr Netanyahu's move was a challenge to US credibility on the Middle East and a "serious blow" to the efforts to restart talks. Mr Obama may now have to water down his demands on settlements to secure progress on "the bigger issues", she said. Mr Netanyahu, she claimed, was "outsmarting" the US President.

Obama should not "water down" his demands. He now needs to ratchet up the price Netanyahu will pay for his continued flouting of international law. Israel receives more aid from the US than any other country on Earth. She cannot continue to be given this money while treating a US President with such open contempt.

Obama needs to start playing hardball.

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Tags: Obama, Netanyahu, israel, palestine, peace talks