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.”

Syria has always demanded the full return of the Golan Heights, which were captured by Israel in the 1967 war, as a pre-condition for any peace agreement with Israel. The Golan is a strategic plateau of about 1,200 square kilometres, which overlooks much of north-eastern Israel.

In 1981, the Israeli parliament voted to extend Israeli law and jurisdiction to the Golan, although this has never been internationally recognised. This annexation could make it more difficult for any Israeli leader wanting to persuade parliament to ratify a peace treaty with Syria. Former prime ministers Yitzhak Rabin and Ehud Barak said they would hold a national referendum on any deal with Syria, which would enable them to circumvent parliament.

Opponents of ceding the Golan Heights argue that Syria cannot be trusted and that it would be suicidal to forego such a vital strategic asset, which enables Israel to peer deep into Syrian territory and so acts as an essential early-warning system against a surprise attack. The topography of the Golan also provides Israel with a physical buffer against any Syrian offensive.

But supporters of a deal with Syria counter that in an age of missiles, territory has become less important. Once a deal is signed with Syria, they add, the strategic situation in the region will change fundamentally, making the Golan Heights a far less vital strategic asset.

Several past Israeli prime ministers have been prepared to provide quiet assurances that they are willing to cede the Golan Heights in exchange for a full peace with Syria, although there has been some dispute over the exact depth of the withdrawal that each prime minister has been ready to countenance.

THE 1967 LINE: This remains the main stumbling block in negotiations. Syria wants Israel to withdraw to the Jun. 4, 1967 line, leaving it in control of the north-eastern shore of the Sea of Galilee, which is Israel's main water source. Israel has rejected this demand in the past, saying that the waterline must remain under its control. It has proposed the international border, which is not flush on the waterline, as the line to which it will withdraw.

When former prime minister Ehud Barak met with then Syrian foreign minister Farouq Shara in U.S.-hosted talks in 2000, the dispute over Syrian access to the Sea of Galilee -- Barak reportedly insisted that the border run a few hundred metres from the shoreline -- ultimately scuppered the negotiations.

MOUNT HERMON: This peak, which abuts the Golan, was also captured by Israel during the 1967 war and is known in Israel as "the eyes of the nation" because it enables Israel to observe troop movements both in Syria and in Lebanon. When Israel and Syria held talks in 2000, one of the issues on the table was an Israeli presence at an early-warning ground station on Mt. Hermon once Israel had ceded the Golan. The station was to be operated by the U.S. and France.

NORMALISATION OF TIES: Israel insists that full diplomatic and economic ties, including an exchange of ambassadors, be part of any peace treaty with Syria. The Syrians have backed a 2002 Arab peace proposal that offers Israel normal ties in exchange for a full withdrawal from all Arab territory captured in the 1967 war, including the Golan Heights, the West Bank and East Jerusalem. It remains to be seen whether Syria is ready to sign a peace treaty with Israel separate from a deal with the Palestinians that includes an Israeli withdrawal from the West Bank.

DEMILITARISATION: Israel wants the entire Golan Heights, and possibly more territory stretching inside Syria from the Heights, to be completely demilitarised to compensate for the loss of the mountain range and the strategic depth it affords Israel. In the past, Syria has demanded that Israel also carve out a demilitarised zone on its side of the border, although the exact depth of each zone will have to be negotiated.

WATER: The Golan contains the main tributaries to the Sea of Galilee, which is Israel's main water source, providing the country with about a third of its water. During the 1960s, efforts by Syria to divert these tributaries led to military clashes. Israel will want assurances from Syria that it will not try to divert the rivers that feed the Sea of Galilee.

SYRIA'S TIES WITH IRAN, HEZBOLLAH AND HAMAS: Israel wants Syria to sever ties with Iran, Hezbollah and Palestinian militant groups like Hamas and Islamic Jihad, which have offices in Damascus. Syria has rejected this as a precondition for talks, saying the issue can be discussed during negotiations.

Israel's defence establishment has strongly supported talks with Syria, believing they could serve Israel's strategic interests by helping to pry Damascus away from Tehran. Israel believes that Iran is determined to acquire nuclear weapons and many in the defence establishment argue that if relations between Syria and Iran can be eroded, it would substantially undercut Tehran's influence in the region.

SETTLEMENTS: There are close to 20,000 Jewish settlers, living in some 30 settlements on the Golan Heights, who will have to be evacuated in the event of a peace deal with Syria. During previous contacts there has been some disagreement between Israel and Syria over the time-frame for the removal of settlements, with Israel suggesting a 15-year-period and the Syrians calling for a 10-year timetable.

The settlers living on the Golan Heights are mainly secular and do not see their presence there in Biblical or messianic terms like the settlers who have spearheaded settlement in the West Bank. But this doesn't mean they are lacking in motivation or political organisation when it comes to fighting governments who have shown a willingness to engage Syria.

In the mid-90s, when the government intimated it was prepared to cede the Golan for peace with Syria, they launched a highly effective grassroots campaign called "Ha'am im Hagolan" (The People are with the Golan), which was aimed at thwarting any government plans to relinquish the mountain range. Opinion polls consistently show that they have the backing of a clear majority of Israelis, with close to 70 percent saying they oppose giving up the Golan Heights.

THE U.S. ROLE: One of Syrian President Bashar Assad's key goals in renewing talks with Israel is to extract Syria from U.S. President George Bush's "axis of evil", and re-establish ties with the U.S. For this reason, he has insisted on U.S. involvement in the negotiations. Israel will also want the U.S. to be involved because they will have to foot the "peace bill", including a substantial arms package for Israel to compensate loss of the Golan Heights.

Bush harbours deep antipathy toward the Assad regime, and for a long time this dissuaded Israeli Prime Minister Ehud Olmert from re-engaging the Syrians around the negotiating table. During a recent visit to Israel, Bush told Olmert that he did not believe Syria would sever its ties with Iran in exchange for a peace treaty with Israel, but he said he would not oppose the renewal of talks between Israel and Syria. Nevertheless, if a peace agreement is to be signed, it will likely have to wait until there is a new resident in the White House in 2009.

German Chancellor Angela Merkel vowed that her country would always stand by Israel, that she was committed to halting Iran's nuclear ambitions, and that rocket attacks by Palestinian militants in Gaza on Israeli towns and cities were a criminal act.

Merkel did not utter a critical word about ongoing Israeli construction in settlements in the West Bank. She did not call on Israel to act with restraint in retaliating TO the rocket attacks by Palestinian militants. And she did not demand an easing of the crippling travel restrictions Israel imposes on Palestinians in the West Bank.

But the focus of Merkel's visit was never going to be the Israeli-Palestinian conflict -- not with the history of the relations between the two countries and the fact that the visit by the German chancellor and at least half of her cabinet was meant to mark the 60th anniversary of the Jewish state, which was born out of the ashes of World War II and the murder of six million Jews by the Nazis.

In a first-ever address by a German chancellor to the Israeli parliament, Merkel told Israeli lawmakers that they had Germany's full support and that the Holocaust filled her and her countrymen with "shame".

"The mass murder of six million Jews, carried out in the name of Germany, has brought indescribable suffering to the Jewish people, Europe and the entire world," she said.

"The Shoah fills us Germans with shame," she continued, using the Hebrew word for the Holocaust. "I bow to the victims. I bow to all those who helped the survivors."

The decision by Israeli lawmakers to allow Merkel to address parliament, and in German, is a rare honour. The gesture reflected the special relationship that has developed between the two countries and the fact that for Israel, Germany is its staunchest ally in Europe.

A handful of Israeli lawmakers protested against the invitation to Merkel to address parliament and the fact she would do so in German. Arieh Eldad, a member of the far-right National Union party, walked out of the plenum in protest. "I know the last sounds heard by my grandparents and my uncles whom I have not known, were those of the German language," he explained.

But the vast majority of lawmakers were present as Merkel began her address in Hebrew, thanking her hosts for allowing her to speak in her "mother tongue" before continuing in German. When she finished her 20-minute address, lawmakers gave her a standing ovation.

Merkel, 53, the first Chancellor to be born after World War II, said that she felt a "historical responsibility" for Israel's security, particularly in light of threats from Iran. "It's not the world that must prove to Iran that Iran is building the nuclear bomb," she said. "Iran must convince the world it does not want the nuclear bomb."

Israel believes that Iran is trying to build nuclear weapons, and Israeli leaders have said that "all options" are open when it comes to preventing Tehran from gaining nuclear proficiency. Israeli Prime Minister Ehud Olmert lauded Merkel for what he called her "strong and determined position against the horrific calls from the President of Iran to wipe Israel off the map, and against Tehran's trickery and deceit."

Merkel told lawmakers in parliament that her country was "setting its sights on a diplomatic solution, together with its partners. The German government will, if Iran does not give in, continue to resolutely defend sanctions," she said.

Merkel did address the Israeli-Palestinian conflict, saying that the two-state solution was the best way to resolve the conflict. But she declined to criticise Israel's insistence on building in settlements. Asked about the matter, Merkel said only that it was a complex issue.

Members of the Islamic Hamas movement attacked the Chancellor, accusing her of ignoring what they called Israel's "holocaust" against the Palestinians in Gaza. Since Hamas snatched control of the coastal strip last year from the more moderate Fatah movement, Israel has imposed a blockade on the area, limiting the flow of goods -- and at times electrical power -- into the strip.

Hamas, which is committed to the destruction of Israel, said that Merkel had "closed her eyes to the holocaust that this entity (Israel) has perpetrated in the Gaza Strip, focusing only on the Holocaust committed by the Nazis against the Jews in her country, the extent of which is a subject of doubts and exaggerations." (Germany has been a major donor to the Palestinians, having donated hundreds of millions of dollars in aid to the Palestinian Authority since its inception in 1994.)

Writing in the daily Haaretz newspaper, historian and journalist Tom Segev said that Merkel "rightfully described the Qassam rocket fire on (the southern town) Sderot as a crime, but did not say a word about repeated human rights abuses in the West Bank, the bombing of residential areas in Gaza or the settlements."

Israel and Germany established diplomatic ties in 1965 after a long period of negotiations, including talks over reparations for Jewish property that was seized by the Nazis during the war. Germany has for decades also paid reparations, to the tune of tens of billions of dollars, to Holocaust survivors.

Merkel said the invitation to address parliament was "a very important step in the development of German-Israeli relations." These were cemented further when at a joint cabinet meeting held by Israeli and German ministers in Jerusalem -- a rare event -- an agreement was signed for tighter military, political, economic and cultural cooperation.

The explanation for this "unrestrained support for Israeli policy," wrote Segev, lies in Merkel's biography. "As she said...she came from East Germany, which used to ignore its part in Nazi crimes and act as though it were West Germany's fault alone.

"After German unification, Merkel discovered that the moral and political responsibility for the genocide of the Jews rested equally on all Germans."

At the start of 2007, it seemed that war would cost Israeli Prime Minister Ehud Olmert his job. As he completed the year, still in office, the greatest threat to him staying there now seems to be the prospect of peace.

Olmert is possibly the least popular prime minister Israel has had. At least that's what the opinion polls reveal. But he will no doubt be happier with his scores at the end of 2007 -- they are at least in double figures -- than at the beginning of the year when they were in single digits. That was because of the impact of the military campaign he launched in Lebanon in the summer of 2006 and which the Israeli public feel he badly mismanaged.

An interim report on the government's handling of the war, published in late April, appeared to be the final nail in Olmert's short career as prime minister (he entered office in May 2006). The report accused him of "a serious failure in exercising judgement, responsibility and prudence."

Its conclusions were damning. "The prime minister made up his mind hastily, despite the fact that no detailed military plan was submitted to him, and without asking for one," the report stated, relating to the decision to go to war. "He made his decision without systematic consultation with others, especially outside the IDF (Israeli Defence Forces), despite not having experience in external-political and military affairs."

There were calls from politicians and from the media for him to quit. But the one person who could have delivered the killer blow -- foreign minister Tzipi Livni, the number two in Olmert's ruling centrist Kadima (Forward) party -- hesitated at the crucial moment. She called on the prime minister to resign, but said she had no plans to do the same, if he did not.

He didn't, her moment had come and gone, and Olmert was left to soldier on. He was helped by the fact that none of the parties in his ruling coalition were keen to go back to the polls just a year after they had been there, and so there was little pressure on him to resign from within the government.

Not that his popularity improved. A series of corruption scandals with which he was linked and which were investigated by the police, further tarnished his image. In fact, so low was his public standing, that in March Olmert resorted to what appeared to be some creative spin, publicly conceding the public's lowly opinion of him.

"I'm an unpopular prime minister, the polls say so," he said. "I think they are right, I am indeed an unpopular prime minister."

But at the same time, he vowed to stick around. "Even though some think this is hunting season, I am sorry to disappoint my detractors, but I am here to work," he said. "I intend to be working for you for a long time yet."

Come June, Israel's intense focus on the Lebanon war was diverted as Hamas militants went on the offensive in Gaza, violently subduing the more moderate Fatah party of Palestinian President Mahmoud Abbas. After winning the election in early 2006, Hamas entered into a power-sharing arrangement with Fatah, but that crumbled in Gaza and Hamas forces routed their Fatah counterparts in the space of a few days, grabbing control of the coastal strip. The West Bank remained under Fatah control.

Olmert's immediate response was to call on the international community to boycott the Hamas rulers in Gaza. His call, to a large extent, was heeded, as most western countries adopted his conditions for lifting a diplomatic embargo on Hamas. The Islamic movement would have to recognise Israel, renounce violence and accept all previous peace accords between Israel and the Palestinians. In September, the Israeli government defined the Hamas-led Gaza Strip as an "enemy entity."

Olmert also adopted a policy of trying to punish the radicals -- Hamas -- and reward the moderates -- Abbas and Fatah. As a result, when hundreds of Palestinian security prisoners were released during the second half of the year, they were almost all Fatah members and almost all from the West Bank. In November, Israel also began to reduce fuel supplies to Gaza. But Israel's refusal to lift stifling travel restrictions in the West Bank, where Abbas is in control, in the form of dozens of roadblocks, did little to bolster the Palestinian leader.

The year, however, was to end with a peace conference and an agreement by the two sides to return to the negotiating table for the first time in seven years. After weeks of wrangling over a joint declaration of principles, Olmert and Abbas met in Annapolis, Maryland, with President Bush acting as the go-between, and declared that they would make every effort to reach a comprehensive peace agreement by the end of 2008, before the U.S. leader left office.

But almost immediately on his arrival back in Israel, Olmert was pouring doubt on what appeared to be a highly ambitious deadline. "An effort will be made to hold accelerated negotiations with the hope that it will be possible to conclude them in 2008, but there is certainly no commitment to rigid timetables regarding these negotiations," the prime minister told his Cabinet after returning from Annapolis in early December.

The statement was seen by many as a signal to the more hardline members of Olmert's ruling coalition, who oppose making concessions to the Palestinians, that he is not in a hurry to cut a deal. Both the rightist Yisrael Beiteinu (Israel Our Home) and the ultra-Orthodox Shas party have warned Olmert that they will bolt the coalition if he agrees to negotiate the core issues at the heart of the conflict, like the borders of a future Palestinian state, the status of Jerusalem, the fate of Palestinian refugees and of the settlements in the West Bank.

If Olmert began 2007 worried that his handling of the Lebanon war might curtail his term in the Prime Minister's Office, he ended the year wondering how far he could push negotiations with the Palestinians before his ruling coalition unravels and he is forced to go to elections.

Israeli Prime Minister Ehud Olmert has issued a dire warning to his people. Failure to reach a negotiated two-state settlement with the Palestinians, he has declared, will mean the end of the State of Israel.

"If the day comes when the two-state solution collapses, and we face a South African-style struggle for equal voting rights (also for the Palestinians in the territories), then, as soon as that happens, the State of Israel is finished," Olmert told the daily Haaretz, a day after he and Palestinian President Mahmoud Abbas agreed at a summit in the U.S. to try and reach a peace agreement by the end of 2008.

The prime minister was referring to what Israelis call the "demographic threat". With Arab birth rates higher than those of Jews, if the two-state solution dies, then Jews will become a minority in the geographic space between the Jordan River and the Mediterranean Sea -- an area that includes sovereign Israel, the West Bank and Gaza -- and Israel will have to defend itself against increasingly vociferous claims it is no longer a democracy.

Olmert has sounded similar views in the past, but never as prime minister. And with the comments coming in the immediate aftermath of the summit in Annapolis, Maryland, it raises the possibility that the Israeli leader is beginning to prepare public opinion for the concessions he will have to make to the Palestinians if a final status peace deal is to be hammered out. It was agreed at the summit that talks on the issues at the core of the conflict, like the future borders of a Palestinian state, arrangements for Jerusalem, and the fate of Palestinian refugees and of Jewish settlements in the West Bank, will begin in December.

It is encouraging that after seven years of bloodshed and a seemingly interminable impasse in peace talks, the two sides are about to reconvene around the negotiating table. But considering that three weakened leaders -- Olmert, Abbas and President George Bush -- are the ones who will have to craft a deal, it is difficult to see how it can be accomplished before the U.S. president leaves office in a year.

Already Olmert is lowering expectations. "We will make an effort to hold speedy negotiations in the hope we may conclude by the end of 2008, but certainly there is no commitment for a firm timetable for their completion," Olmert said on Sunday.

Having returned from the dizzying heights of a summit attended not only by Abbas but also by many Arab leaders, Olmert will come face-to-face with the dilemma he confronts at home -- move forward on the peace front and risk having his ruling coalition unravel, or drag his feet in the talks and keep his government intact.

To propel the peace process forward, the Israeli leader will be required to make territorial and other concessions to the Palestinians that could leave him facing an early election. The right-wing parties in his government, who oppose far-reaching concessions to the Palestinians, have threatened to leave the coalition the moment these are made.

With Olmert's popularity ratings low, due largely to the sense within the Israeli public that he badly mismanaged the military campaign in Lebanon last year, it is hard to see how he could summon the political will to push through what would be an extremely complex peace arrangement. But some suggest that his very political weakness could be what pushes him toward sealing a deal with Abbas, as it would then provide him with a strong campaign message if he were forced to go to an election.

Abbas was reminded during the summit of the difficulties he will face in trying to forge a final status peace agreement, when a Palestinian man was shot dead by his security forces as they were trying to disperse an Islamist-led protest against the summit in the West Bank town of Hebron. With Hamas having seized control of the Gaza Strip in June and having vanquished Abbas' Fatah forces there, the Palestinian leader has been further weakened and many Israelis wonder whether he can implement a peace deal.

Bush promised at the close of the summit that the U.S. would be "actively engaged in the process". But the president's actions over the last seven years raise doubts about his willingness to fully back Mideast negotiations. He has adopted an arms-length approach, trying to manage the conflict without getting caught up in it. Why now, at the end of his term, ask the sceptics, would he suddenly begin actively dabbling in the elusive business of Mideast peacemaking?

And even if he is willing to suddenly throw the full weight of the presidency behind the negotiations, it may well be too late. With only a year left in office, it is doubtful that the president possesses the type of political capital that will be required to seal a peace deal in the Middle East in the space of just 12 months.