Abir Dandis, the mother of the two girls who were murdered in the Negev town of Al-Fura’a last week, couldn't find a police officer to listen to her warnings, neither in Arad nor in Ma’ale Adumim. Both police stations operate in areas where Israel wants to gather the Bedouin into permanent communities, against their will, in order to clear more land for Jewish communities. The dismissive treatment Dandis received shows how the Bedouin are considered simply to be lawbreakers by their very nature. But as a resident of the West Bank asking for help for her daughters, whose father was Israeli, Dandis faced the legal-bureaucratic maze created by the Oslo Accords.

The Palestinian police is not allowed to arrest Israeli civilians. It must hand suspects over to the Israel Police. The Palestinian police complain that in cases of Israelis suspected of committing crimes against Palestinian residents, the Israel Police tend not to investigate or prosecute them.

In addition, the town of Al-Azaria, where Dandis lives, is in Area B, under Palestinian civilian authority and Israeli security authority. According to the testimony of Palestinian residents, neither the IDF nor the Israel Police has any interest in internal Palestinian crime even though they have both the authority and the obligation to act in Area B.

The Palestinian police are limited in what it can do in Area B. Bringing in reinforcements or carrying weapons in emergency situations requires coordination with, and obtaining permission from, the IDF. If Dandis fears that the man who murdered her daughters is going to attack her as well, she has plenty of reason to fear that she will not receive appropriate, immediate police protection from either the Israelis or the Palestinians.

Dandis told Jack Khoury of Haaretz that the Ma’ale Adumim police referred her to the Palestinian Civil Affairs Coordination and Liaison Committee. Theoretically, this committee (which is subordinate to the Civil Affairs Ministry) is the logical place to go for such matters. Its parallel agency in Israel is the Civilian Liaison Committee (which is part of the Coordination and Liaison Administration - a part of the Civil Administration under the Coordinator of Government Activities in the Territories).

In their meetings, they are supposed to discuss matters such as settlers’ complaints about the high volume of the loudspeakers at mosques or Palestinians’ complaints about attacks by settlers. But the Palestinians see the Liaison Committee as a place to submit requests for permission to travel to Israel, and get the impression that its clerks do not have much power when faced with their Israeli counterparts. In any case, the coordination process is cumbersome and long.

The Palestinian police has a family welfare unit, and activists in Palestinian women’s organizations say that in recent years, its performance has improved. But, as stated, it has no authority over Israeli civilians and residents. Several non-governmental women’s groups also operate in the West Bank and in East Jerusalem, and women in similar situations approach them for help. The manager of one such organization told Haaretz that Dandis also fell victim to this confusing duplication of procedures and laws. Had Dandis approached her, she said, she would have referred her to Adalah, the Legal Center for Arab Minority Rights in Israel, which has expertise in navigating Israel’s laws and authorities.

John Kerry revealed his long-awaited plan for peace in the Middle East on Sunday, hinging on a $4bn (£2.6bn) investment in the Palestinian private sector.

The US secretary of state, speaking at the World Economic Forum on the Jordanian shores of the Dead Sea, told an audience including Israeli president Shimon Peres and Palestinian leader Mahmoud Abbas that an independent Palestinian economy is essential to achieving a sustainable peace.

Speaking under the conference banner "Breaking the Impasse", Kerry announced a plan that he promised would be "bigger, bolder and more ambitious" than anything since the Oslo accords, more than 20 years ago.

Tony Blair is to lead a group of private sector leaders in devising a plan to release the Palestinian economy from its dependence on international donors. The initial findings of Blair's taskforce, Kerry boasted, were "stunning", predicting a 50% increase in Palestinian GDP over three years, a cut of two-thirds in unemployment rates and almost double the Palestinian median wage. Currently, 40% of the Palestinian economy is supplied by donor aid.

Kerry assured Abbas that the economic plan was not a substitute for a political solution, which remains the US's "top priority".

Peres, who had taken the stage just minutes before, also issued a personal plea to his Palestinian counterpart to return to the negotiations.

"Let me say to my dear friend President Abbas," Peres said, "Should we really dance around the table? Lets sit together. You'll be surprised how much can be achieved in open, direct and organised meetings."

Thick locks hug the front gates of shuttered shops, now covered in graffiti and dust from lack of use. Only a handful of customers pass along the dimly lit road, sometimes stopping to check the ripeness of fruits and vegetables, or ordering meat in near-empty butcher shops.

“All the shops are closed. I’m the only one open. This used to be the best place,” said 64-year-old Mustafa Sunocret, selling vegetables out of a small storefront in the marketplace near his family’s home in the Muslim quarter of Jerusalem’s Old City.

Amidst the brightly coloured scarves, clothes and carpets, ceramic pottery and religious souvenirs filling the shops of Jerusalem’s historic Old City, Palestinian merchants are struggling to keep their businesses alive.

Faced with worsening health problems, Sunocret told IPS that he cannot work outside of the Old City, even as the cost of maintaining his shop, with high electricity, water and municipal tax bills to pay, weighs on him.

“I only have this shop,” he said. “There is no other work. I’m tired.”

Abed Ajloni, the owner of an antiques shop in the Old City, owes the Jerusalem municipality 250,000 Israeli shekels (68,300 U.S. dollars) in taxes. He told IPS that almost every day, the city’s tax collectors come into the Old City, accompanied by Israeli police and soldiers, to pressure people there to pay.

“It feels like they’re coming again to occupy the city, with the soldiers and police,” Ajloni, who has owned the same shop for 35 years, told IPS. “But where can I go? What can I do? All my life I was in this place.”

He added, “Does Jerusalem belong to us, or to someone else? Who’s responsible for Jerusalem? Who?”

Illegal annexation

Israel occupied East Jerusalem, including the Old City, in 1967. In July 1980, it passed a law stating that “Jerusalem, complete and united, is the capital of Israel”. But Israel’s annexation of East Jerusalem and subsequent application of Israeli laws over the entire city remain unrecognised by the international community.

Under international law, East Jerusalem is considered occupied territory – along with the West Bank, Gaza Strip and Syrian Golan Heights – and Palestinian residents of the city are protected under the Fourth Geneva Convention.

Jerusalem has historically been the economic, political and cultural centre of life for the entire Palestinian population. But after decades languishing under destructive Israeli policies meant to isolate the city from the rest of the Occupied Territories and a lack of municipal services and investment, East Jerusalem has slipped into a state of poverty and neglect.

“After some 45 years of occupation, Arab Jerusalemites suffer from political and cultural schizophrenia, simultaneously connected with and isolated from their two hinterlands: Ramallah and the West Bank to their east, West Jerusalem and Israel to the west,” the International Crisis Group recently wrote.

Israeli restrictions on planning and building, home demolitions, lack of investment in education and jobs, construction of an eight-foot-high separation barrier between and around Palestinian neighbourhoods and the creation of a permit system to enter Jerusalem have all contributed to the city’s isolation.

Formal Palestinian political groups have also been banned from the city, and between 2001-2009, Israel closed an estimated 26 organisations, including the former Palestinian Liberation Organisation headquarters in Jerusalem, the Orient House and the Jerusalem Chamber of Commerce.

Extreme poverty

Israel’s policies have also led to higher prices for basic goods and services and forced many Palestinian business owners to close shop and move to Ramallah or other Palestinian neighbourhoods on the other side of the wall. Many Palestinian Jerusalemites also prefer to do their shopping in the West Bank, or in West Jerusalem, where prices are lower.

While Palestinians constitute 39 percent of the city’s population today, almost 80 percent of East Jerusalem residents, including 85 percent of children, live below the poverty line.

“How could you develop [an] economy if you don’t control your resources? How could you develop [an] economy if you don’t have any control of your borders?” said Zakaria Odeh, director of the Civic Coalition for Palestinian Rights in Jerusalem, of “this kind of fragmentation, checkpoints, closure”.

“Without freedom of movement of goods and human beings, how could you develop an economy?” he asked.

“You can’t talk about independent economy in Jerusalem or the West Bank or in all of Palestine without a political solution. We don’t have a Palestinian economy; we have economic activities. That’s all we have,” Odeh told IPS.

Israel’s separation barrier alone, according to a new report by the United Nations Conference on Trade and Development (UNCTD), has caused a direct loss of over one billion dollars to Palestinians in Jerusalem, and continues to incur 200 million dollars per year in lost opportunities.

Israel’s severing and control over the Jerusalem-Jericho road – the historical trade route that connected Jerusalem to the rest of the West Bank and Middle East – has also contributed to the city’s economic downturn.

Separation of Jerusalem from West Bank

Before the First Intifada (Arabic for “uprising”) began in the late 1980s, East Jerusalem contributed approximately 14 to 15 percent of the gross domestic product (GDP) in the Occupied Palestinian territories (OPT). By 2000, that number had dropped to less than eight percent; in 2010, the East Jerusalem economy, compared to the rest of the OPT, was estimated at only seven percent.

“Economic separation resulted in the contraction in the relative size of the East Jerusalem economy, its detachment from the remaining OPT and the gradual redirection of East Jerusalem employment towards the Israeli labour market,” the U.N. report found.

Decades ago, Israel adopted a policy to maintain a so-called “demographic balance” in Jerusalem and attempt to limit Palestinian residents of the city to 26.5 percent or less of the total population.

To maintain this composition, Israel built numerous Jewish-Israeli settlements inside and in a ring around Jerusalem and changed the municipal boundaries to encompass Jewish neighbourhoods while excluding Palestinian ones.

It is now estimated that 90,000 Palestinians holding Jerusalem residency rights live on the other side of the separation barrier and must cross through Israeli checkpoints in order to reach Jerusalem for school, medical treatment, work, and other services.

“Israel is using all kinds of tools to push the Palestinians to leave; sometimes they are visible, and sometimes invisible tools,” explained Ziad al-Hammouri, director of the Jerusalem Centre for Social and Economic Rights (JCSER).

Al-Hammouri told IPS that at least 25 percent of the 1,000 Palestinian shops in the Old City were closed in recent years as a result of high municipal taxes and a lack of customers. “Taxation is an invisible tool…as dangerous as revoking ID cards and demolishing houses,” he said. “Israel will use this as pressure and as a tool in the future to confiscate these shops and properties.”

It was inevitable that the Mossad, Israel's secret security service, would be accused of the assassination of a leading Hamas military commander in Dubai last month. Israel has the obvious motive – Hamas is formally dedicated to the country's violent destruction. And the Mossad has a record of state-sponsored, extra-judicial execution of its enemies abroad.

The truth about who was behind the killing may never emerge. British official opinion seemed exercised only by the fact that forged UK passports were involved in the operation (as if British spies do not travel on fake documents).

It is hard to avoid the impression that, had the murder been more discreet, the Foreign Office would have ignored it entirely. Hamas is no friend of Britain.

But the assassination is an important reminder of realities that cannot be ignored: Israel and the Palestinians are in a state of perpetual war; it is only the intensity of the conflict that varies. Britain, as a western power with deep strategic involvement in the Middle East, is involved whether it likes it or not.

But wielding diplomatic influence, as opposed to military power, is not so easy. Israeli policy is driven by two fears. The first, quite justified, is that the country is mostly surrounded by hostile states, some of which host terrorist attacks against its civilians. The second, unjustified, is that ­criticism from any quarter includes an implicit question of the legitimacy of the Jewish state.

That paranoia leads to constant reliance on isolationist militarism which, as well as creating terrible injustice for the Palestinians, has ­consistently failed to provide the security that Israelis crave.

But there is an equivalent paranoia on the ­Palestinian side. This is the idea, vigorously propagated by Islamist radicals, that US and European policy towards Israel is part of a vast conspiracy; at its most extreme, this view uses "Zionism" is a byword for western global hegemony.

These prejudices are getting ever harder to penetrate. As a result, diplomatic initiatives are corrupted with suspicion before they have even begun. It is, for example, hard for Israel to accept calls for restraint when it sees no mechanism for protecting its civilians other than unilateral force. The diplomatic challenge is to help Israel grasp how its failure even to engage with international opinion risks an isolation which will make the country much less secure.

The precipitous decline of trust in any third-party broker for an Israel-Palestine settlement is perhaps the most corrosive force in the Middle East today. In Israel, it is leading to a rise in introspective nationalism and the marginalisation of liberal dissent. In Palestine, it plays into the hands of terrorists.

The surest way to accelerate a peace is for Israel to break free of the self-defeating cycle of using extreme force as the preferred form of self-defence. That places obligations on Israel's neighbours to normalise relations. But, as the occupying power in disputed territory, Israel has the levers to effect changes on the ground that would instantly move a resolution to the conflict closer.

Israel's greatest weakness has always been that it does not know its own strength. The international community must act to give it the ­confidence to compromise.

Under new labelling rules, customers will be able to distinguish between Israeli settlement products and Palestinian goods from the occupied West Bank (Report, 11 December). It should also be made clear that those settlements are illegal under international law.

But since when has the implementation of law been a matter of individual choice? It was the government, not shoppers, who signed up to the Geneva conventions and security council resolutions that made the settlements illegal. It's up to the government to enforce its own commitment and ban the import and sale of what amount to stolen goods.

Meanwhile, in the absence of proper enforcement, I have been conducting my own "citizen's seizures", removing "West Bank" dates from supermarket shelves. I have offered Tesco and Sainsbury's repayment if they can show the dates are not the produce of illegal settlements.

Some dates I have "sold" in aid of Gaza charities, and some I have sent to UK lawmakers and enforcers with an invitation to consider who stole them. A recent consignment is on its way "home" to Gaza with the Viva Palestina convoy.

More important is for the UK to implement the laws it has signed. The history of Israel/Palestine has been bedevilled by contradictory commitments and selective enforcement. Now the import and sale of settlement products must be stopped.

The Foreign Office may not be calling for a boycott of Israeli goods, but it must honour the human rights clause included in the EU trade agreement with Israel. There should be no favoured entry for Israeli goods into Europe until the rights of Palestinians are respected.

Last month, a Brooklyn-based non-profit organisation called the Hebron Fund, which supports Jewish settlers in the Israeli-occupied city of Hebron, held a fundraiser at the New York Mets' stadium, Citi Field.

The fundraiser went forward despite calls for its cancellation from grassroots human rights organisations from the US, Palestine and Israel. The fact that the Hebron Fund likely raised hundreds of thousands of dollars for extremist Israeli settlers at a major US venue with little public scrutiny is a troubling sign for those who hope that the US can play a constructive role in achieving a just peace in the Middle East.

Perhaps more worryingly, according to Washington Post columnist David Ignatius: "A search of IRS records identified 28 US charitable groups that made a total of $33.4m in tax-exempt contributions to settlements and related organisations between 2004 and 2007." Some of the larger organisations, including Friends of the Ateret Cohanim and Friends of Ir David, both leading the Jewish settler takeover of Palestinian East Jerusalem, are based in New York City.

Israeli settlements violate the Geneva convention's prohibition against an occupying power transferring its population into occupied territory, and Israeli settlement expansion directly contradicts the US call for a settlement freeze.

Hebron's Jewish settlers, who are supported by the Hebron Fund, are openly fundraising in New York City. Under the protection of the Israeli military, they are expanding settlements in Hebron's Old City and driving out the Palestinian residents.

The Hebron Fund's extremist positions are clear. Hebron Fund executive director Yossi Baumol told The American Prospect that "[d]emocracy is poison to Arabs", "Israel must not give Arabs a say in how the country is run" and "[y]ou'll never get the truth out of an Arab". Hebron's chief rabbi, Dov Lior, a featured participant in some Hebron Fund events, recently praised a new book that says it is permitted for a Jew to kill civilians who provide moral support to an enemy of the Jews, and to even kill young children, if it is foreseeable that they will grow up to become enemies.

Settlers and the Israeli army routinely attack and terrorise Palestinians in Hebron, according to human rights groups such as B'Tselem in Israel. In 1994, Hebron settler Baruch Goldstein massacred 29 unarmed Palestinians who were praying in a Hebron mosque. One of the honorees at the 2009 Hebron Fund dinner, Noam Arnon, called Goldstein "an extraordinary person'' in 1995. In 1990 Arnon called three Jewish terrorists who were convicted of killing three Palestinians and maiming two Palestinian mayors "heroes".

Though the Hebron Fund tells the IRS that its purpose is to "promote social and educational wellbeing", in 2008 Baumol assured New York radio listeners: "There are real facts on the ground that are created by people helping the Hebron Fund and coming to our dinners."

A 2007 appeal explained: "Dozens of new families can now come live in Hebron ... waiting for you to be their partners in the redemption of Hebron."

Baumol dedicated the 2009 fundraiser to protesting at "racist limitations, led by President Barack Obama on Jewish growth".

Settlers frequently claim that preventing Jews from living anywhere they want in the Israeli-occupied West Bank is "racist", regardless of the settlers' severe infringement on the rights of longstanding Palestinian residents. Settlers justify their takeover of Hebron by invoking the massacre of 67 Jewish residents of Hebron by Palestinians in 1929. But rather than equality, Hebron's settlers aim for superior rights enforced from the barrel of a gun.

Non-profit organisations like the Hebron Fund play a substantial role in fuelling the Middle East conflict, but largely fly under the radar in the US. They brazenly hold public fundraisers, and the media generally ignore them. Major US advocacy organisations that claim to oppose Israeli settlements typically fail to criticise them. In one rare mainstream media report, David Ignatius highlighted the US government's self-defeating policy, writing that "critics of Israeli settlements question why American taxpayers are supporting indirectly, through the exempt contributions, a process that the government condemns".

Until the public, advocacy groups, media and the US government scrutinise and rein in settlement non-profits like the Hebron Fund, policy statements about peace in the Middle East will do nothing to stop the daily violence and dispossession suffered by Palestinians.

Whether he makes good on the pledge he made last night not to stand in next year's elections, or whether he is eventually persuaded to stay, the Palestinian president, Mahmoud Abbas, has had enough already. And it is clear why. He was elected nearly five years ago to negotiate a Palestinian state and has got nowhere, even with two Israeli governments who understand that the alternatives to his leadership are worse. But even the best Palestinian president that Israel is going to get could not stop settlement construction, an obligation Israel signed up to in 2003. Even he could not stop the US secretary of state, Hillary Clinton, saying in Cairo at the weekend that Binyamin Netanyahu's offer of a partial freeze (the continued construction of 3,000 settler homes, continued building in East Jerusalem and all public projects in settlements) was "unprecedented". Mr Abbas has threatened to quit before. This time he means it.

If he does, a large building block, if not the foundation stone, of the US and Israel's plans to fashion a settlement with one half of the Palestinian people could disappear with him. Much of their current policy – not just theirs but the Quartet's and the EU's – is predicated on the assumption that Palestinians can be divided into "good" West Bankers and "bad" Gazans. With one, Israel can negotiate. With the other, Israel can only fight. But if the best West Banker of them all walks out of the Mukataa compound in Ramallah, all bets are also off not only about negotiations, but who should lead them. It could be a non-Fatah person like the prime minister Salam Fayyad. It could be a former Fatah strongman like Mohammed Dahlan or Jibril Rajoub. But this is too unlikely.

The absence of Mr Abbas would more likely clear the path for Marwan Barghouti to run. He is a popular leader, recently elected to Fatah's central committee. He is all the more acceptable to the Palestinian street for the fact that he is currently serving five life terms in an Israeli jail. Mr Barghouti's ascension would complicate life for the Fatah old guard. But as a Palestinian who still regards resistance as a legitimate response to the occupation, Mr Barghouti would narrow the gap between the leadership in the West Bank and Hamas in Gaza on this point alone. All of this is as yet hypothetical. But the mere sketching of a post-Abbas scenario underlines how much could change, and how radically, a few kilometres from Jerusalem's borders. Which explains why, within short order yesterday, Mr Abbas's phone was burning with calls from the presidents of Egypt and Israel, the king of Jordan and Israel's defence minister, all pleading with him to stay.

There are many ambiguities in the president's current position. Mr Abbas's mandate ran out in January, and he remains president only because another title was found for him, although not one based on a popular vote. There are also doubts about when a Palestinian election will be held. It is slated for January, but an election commission will almost certainly find that it is impossible to hold one in Hamas-run Gaza. It could then be delayed until June, in the hope that reconciliation could be arranged with Hamas. So even if the president makes good on his threat to leave, he could remain in office well into next year.

So often used to micromanage and manoeuvre personalities, US diplomats should step back and look at the bigger picture. It is one in which the dream of a two-state solution is souring. They should take this prospect seriously and assess which of two options poses the greater threat to US regional interests: forcing Israel, if necessary by withholding money or arms, to abide by a commitment which poses no existential threat to the Israeli state, or letting the impasse continue until a third Palestinian uprising ignites. Behind Mr Abbas's actions, serious and widespread frustration lies. And we know from past experience into whose hands this plays.