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.”

Secretary of State John Kerry has put Palestinian economic growth high on the agenda with his recent shuttle diplomacy to restart peace talks, but a group of Israeli and Palestinian business leaders are a couple steps ahead of him.

The last few years, amid a dearth of political progress, they have been working toward the establishment of an arbitration court, the first of its kind, to resolve cross-border-trade business disputes between Israelis and Palestinians that otherwise have no realistic address for adjudication.

Economic collaboration between Israelis and Palestinians has been hobbled by the lack of a neutral forum for settling disagreements between Israeli and Palestinian businessmen when they arise. Palestinians and Israelis face restricted access to each other’s territory and have little trust in courts lying across the border. Without any legal recourse for problems like a bounced check, transactions become riskier and less attractive, cooling commercial ties.

So they created the "Jerusalem Arbitration Center," which is sponsored by chamber of commerce associations on both sides and slated to begin its work by the end of 2013. The goal is to give merchants and investors peace of mind, eliminating disincentives to expanding the trade relationship that totals $4 billion a year – Palestinians’ largest such relationship, by far. The court will consist of two Israelis, two Palestinians, and five international legal or arbitration experts. The Israeli and Palestinian governments have agreed to enforce the court's rulings.

"The trade community became a cash-based community, because there was no recourse if a check bounced," says Sam Bahour, a Palestinian businessman. "If [the arbitration court] gets traction, it could be something interesting."

Skirting politics

As part of the revived push for a peace agreement, Israel, the US, and the Palestinians are devoting substantial time and attention to efforts to boost the Palestinian economy, believing economic growth would improve the environment for negotiations.

Many of the steps, such as ceding Israeli control over some parts of the West Bank so the land can be devoted to Palestinian economic projects and relaxation of restrictions on Palestinian movement, are likely to face opposition from hardliners in Israeli Prime Minister Benjamin Netanyahu’s cabinet. The US is also expected to transfer more aid for infrastructure projects

The arbitration center is something different. Three years in the making, it is a homegrown, independent effort by business communities on both sides to smooth commerce – in spite of chilled relations between their governments, a vacuum of negotiations, and Israeli barriers on movement and access that handicaps Palestinian businessmen.

"It has nothing to do with the political process. It has to do with surviving the conflict and not ending the conflict," says Samir Hulileh, the chief executive of Padico, a Palestinian conglomerate with businesses from real estate to telecommunications to manufacturing. "It gives confidence to investors. Investors should see there’s an exit, and that they’re not part of a problem held up in the political process."

The effort has been spearheaded by Palestinian billionaire Munib Masri, the owner of Padico, and Oren Shachor, a former major general who oversaw the Israeli government’s civil administration of the Palestinian territories.

At the outset of a transaction, businessmen will sign contracts agreeing to use the Jerusalem Arbitration Center in the event of a dispute. Should a case be brought to the court, it will be handled by a panel of three arbitrators – one Israeli, one Palestinian and one international. The decisions will then be referred to local courts, whether in Israel or the Palestinian territories, which will oversee implementation and enforcement by police authorities.

It’s unclear, however, how the court would handle a trade dispute linked to geopolitical issues like the movement and access restrictions on Palestinians dictated by Israeli security authorities.

Creating trust

Last month, days after the announcement of a plan to normalize estranged ties between Turkey and Israel, the local chambers of commerce said the arbitration center will be chaired by Rifat Hisarcıklıoğlu, a Turkish business leader close to Turkish President Abdullah Gul.

Turkey was chosen because it remained an important trade partner for Israel, despite the deterioration of relations between the two governments in the last couple years. For the Palestinians, Turkish involvement represents the presence of a Muslim regional power that has actively supported the Palestinian cause.

"Turkey is a country that is close by, and we have a huge cycle of business with," says Mr. Shachor, who believes trade between Israel and the Palestinians will double in five years as a result of the arbitration. "The center is a bridge between Palestinians and Israelis."

Israeli and Palestinian companies trade in everything from agriculture, to building materials, to telecommunications services. Companies in all industries might end up availing themselves of the arbitration center.

It will potentially simplify the lives of those like Brian Thomas, a British Israeli who imports computer equipment and then sells to Palestinian vendors in the West Bank. He says all of his transactions are in cash, which forces him to carry tens of thousands of dollars in cash at a time.

If a joint court worked as advertised, he says he might consider allowing Palestinian clients buy on credit, although he says he remains skeptical because enforcement of transaction claims is lax, even among Israelis.

"Everybody knows there is no legal recourse if they run away with your money. If I looked into it, and it was real, and I had confidence, it might mean that I would do more business with these guys," he says. "But Israeli courts chasing Israelis is hard enough, to go after an Arab in Nablus sounds stupid."

Improved trade with Israel would be an economic boon for Palestinians: the current $500 million in annual exports to Israel represents 80 percent of all Palestinian exports. Even a 25 percent increase would be significant, says Saad Khatib, the former director general of the Palestinian Federation of Industries.

Mr. Khatib says that in order to create the conditions for long-term growth of the Palestinian private sector, Israeli and Palestinian politicians need to sit down and negotiate a new customs regime that will give Palestinians control over tariffs on goods from abroad while preserving free trade between Israelis and Palestinians.

He suggests that politicians take their cues from the business community.

"The private sector wants to work together and wants to improve the situation," he says. "Generally, the private sector is miles ahead of any government. Hopefully it will play catch up."

President Barack Obama received glowing praise from Israelis for a Jerusalem speech last week in which he reaffirmed his support for the two-state solution. But with the new Israeli cabinet's first working meeting today, a government that could lower the prospects of an eventual Palestinian state is taking the helm.

As a result of the strong electoral showing by the nationalist Jewish Home party, which earned it a place in the governing coalition, key ministries and other government positions will be held by settlers and their allies, who are determined to make the Israeli presence in the West Bank and East Jerusalem irreversible.

"This is the opposite of a dream team, in every important intersection of authority," says Danny Siedemann, a Jerusalem lawyer and peace activist who monitors Israeli building in East Jerusalem and the West Bank. "All of these people are predisposed to an unprecedented settlement surge, in the West Bank and East Jerusalem. All of them are hostile to the two-state solution."

Although newly-appointed Israeli Trade Minister Naftali Bennett, the charismatic leader of Jewish Home, exchanged pleasantries with US Ambassador to Israel Daniel Shapiro at a dinner to honor Mr. Obama, he speaks openly about doubling the number of settlers in the West Bank and East Jerusalem to 1 million and annexing much of the West Bank. As trade minister, he can award permits to Israeli businesses seeking to set up premises in West Bank industrial zones and exert influence on decisions made by other ministries.

With Jewish Home members also leading Israel’s housing ministry, which oversees construction in the West Bank as well as Israel, and the Israeli parliament’s finance committee, Mr. Bennett and allies are well-positioned to push that agenda. Shortly after Obama’s speech, Mr. Bennett posted a response (Hebrew) on his Facebook page.

"A Palestinian state isn’t the correct path," he wrote. "It's about time for new and creative solutions to the conflict in the Middle East. Moreover, there’s no such thing as an occupier in his own land."

The coming lovers' quarrel

To be sure, in the immediate afterglow of Obama's first state visit to Israel – almost universally recognized as a success if the measure is his ability to reassure Israel of his support – this line of criticism seems to be in the minority.

After Obama emerged from Israel’s Yad Vashem Holocaust Memorial, Israel’s former chief Ashkenazi rabbi, Meir Lau, a Holocaust survivor who served as an escort on the stop, told Israel Radio that Obama had been moved by the museum. "If anyone did think he was an enemy," he said, "they now know he is a lover."

The visit was a success, in part, because Israel’s government was on its best behavior. The army largely ignored rocket attacks from Gaza and an encampment of Palestinians in a controversial tract of land just to the east of Jerusalem. And unlike three years ago, when a new building project in East Jerusalem was announced during Vice President Joe Biden's visit to the country, similar discussions of new Israeli building projects – like a military academy in East Jerusalem – were dropped from the agenda of planning boards.

But Uri Ariel, the new housing minister from Jewish Home, is likely to bring those projects – and many more – back on the agenda. The far-right parliamentarian who resides in the settlement of Kfar Adumim knows about building in the West Bank from years of experience: he once headed the Amana Movement, a 34-year-old settler organization that oversaw home building and the organization of new communities in the West Bank and Gaza Strip. He was also director general of the settlers' umbrella leadership, the Yesha Council, in the late 1980s and early 1990s, when settlement activity surged.

In an interview with the pro-settler weekly "Eretz Yisrael Shelanu" (Our Land Israel), he invoked the Messianic theology of the religious settler movement, saying his appointment marks "another stage on the path to redemption."

He also cited his career of advancing building "in all parts of our holy land." "With God’s help, I will continue on this path," he told the newspaper.

Bracing for bad news

Obama said during his central address in Israel that settlement construction threatens a two state solution: "Israelis must recognize that continued settlement activity is counterproductive to the cause of peace, and that an independent Palestine must be viable with real borders that have to be drawn.’’

But now that the glare of the presidential spotlight has abated and Mr. Ariel is heading the ministry that prepares government building tenders in the West Bank, settlement watchdogs are bracing for new announcements about controversial projects like East Jerusalem's Kidmat Tziyon, a 300-unit planned housing development located near a Palestinian Jerusalem neighborhood next to the Mount of Olives.

Sidemann said that in the next couple of weeks, the "logjam" of building projects in the West Bank and Jerusalem is liable to burst.

The international community will also be focused on the fate of E-1, a land tract Israel’s government has slated for housing, but is seen by critics as driving a wedge between the northern and southern West Bank. New building projects in far-flung settlements beyond Israel's separation wall will also be watched closely.

Mr. Ariel is a "man who gets things done," says Gil Hoffman, the political reporter for The Jerusalem Post. That said, Mr. Hoffman insists that Ariel is a pragmatist and will seek to maintain the pace of building under previous governments rather than a provocative building surge.

Normalization

Many Israelis expect that Jewish Home will use its leadership of the Knesset finance committee, which prepares the annual budget, to channel additional funds to the settlements.

Defense Minister Moshe Yaalon has perhaps the most power after Prime Minister Benjamin Netanyahu. The hardline member of Likud who is considered sympathetic to the settlers' goals has far-reaching powers to authorize building in the West Bank and has publicly said that an accord with the Palestinians is unrealistic in the near future.

The US is hoping that Obama's positive first trip will reinvigorate peace efforts, though most settlers are not worried. They see the composition of the new Israeli cabinet as a reassurance that Israeli policy will move away from peace negotiations. Yisrael Meidad, a resident of the settlement of Shilo, says the new government could normalize Israeli perceptions of the setters; many non-settler Israelis are generally not enthusiastic about the settlements and believe that many should be returned to the Palestinians for peace. If attitudes changed, Israel could be headed toward a starkly different vision than that laid out by Obama.

"[The new government] might bring us in from the cold," Mr. Meidad says. "We’ve graduated from being cautiously optimistic to looking forward to its ability to consolidate what I think is the latent willingness of Israel’s population to be comfortable with right-wing or nationalist Zionism."

The Afikim Bus No. 210 pulled up to a stop outside the main shopping mall in this Tel Aviv suburb on its maiden run from Israel to the West Bank on Monday, but for unsuspecting Israelis who tried to board the driver had a swift interdict.

"You cannot come on this bus."

That’s because the 210 line is one of two new buses that are effectively Palestinian-only. Israel’s transportation ministry added the buses with an eye to shuttling those with work permits to and from West Bank road blocks and Israeli cities. The government says the new subsidized lines are the first of many meant to ease transportation for tens of thousands of day laborers and make it more affordable.

Palestinians and human rights advocates see it as an attempt to institute a segregated bus system to separate Israeli settlers from Palestinian neighbors who routinely find themselves side by side on commutes at the end of a day of work inside of Israel.

As more Palestinians have been allowed back to jobs inside Israel following the uprising in the first part of the last decade, there has been growing tension on buses. Settlers allege they are getting left behind at bus stops because their seats are taken by Palestinians, while Palestinians complain that Israeli police have removed them from buses at the settlers’ behest and made to return on foot.

"It's true that we can’t ride the 81 bus anymore just because we are Arab," says Mohammed Hassnein, a painter riding the 210 bus back to Nablus, referring to a line that serves the bedroom community settlement of Kedumim. "In my opinion, [the new bus] is racist because it’s not meant to facilitate our lives."

Israeli human rights advocates say the new bus system counts as another element of the Jewish state’s military occupation of the West Bank that evokes elements of the apartheid system that separated races in South Africa or racial segregation in the southern United States during the first half of the last century.

In response to the criticism, the Israeli Transportation Minister Israel Katz issued a statement on Monday saying that he had instructed officials to ensure that Palestinians with permits to enter Israel are allowed access to all public bus lines.

The new bus lines are meant to reduce laborers' dependence on gypsy van operators, and the fare of 5 shekels ($1.34) to Kfar Saba and double to Tel Aviv – is a significant discount, a shift acknowledged by the workers.

The IDF estimated at the end of 2012 that 73,000 Palestinians get their income from inside Israel.

"Now they have a bus for us…. This is excellent because we need to save money," says Faisail Hussein, a tile worker who rode the 210 Monday morning as he waited for a ride home.

While the transportation ministry statement promises the new bus service should be "unrestricted and equal" for all populations, the new bus lines are formatted to serve Palestinians only and effectively bar Israelis.

Catering to the commute for Palestinian laborers, the first 210 bus starts out at 4:30 am from the Eyal Crossing – a crossing point between the West Bank and Israel that serves only Palestinians – and passes about 10 stations in Kfar Saba before terminating in Ra’anana another suburb. But once inside Israel, the buses do not accept new passengers.

Busses in the opposite direction begin at 3:15 in the afternoon and pass through Kfar Saba’s industrial zone, but don’t let passengers off until reaching the crossing points for Palestinians going back to the West Bank – effectively keeping Israelis off.

A second bus, the 211, runs from the Eyal Crossing to central Tel Aviv. More lines are planned, said the bus operator's chief executive Ben Hur.

In the last decade Israel has set up a separate road system in the West Bank for Palestinians and established separate crossing points into Israel. Infrastructure like water is also separated, says Michael Sfard, a human rights lawyer.

"The notion that they would be better off with their own buses echoes the idea that was rejected 60 years ago by the American Supreme Court of separate but equal," says Mr. Sfard. "This regime of separation is shaped according to ethnic and national lines, and it is done in the context of the domination of one group over another, and with the intention of maintaining that domination."

Both activists from Machsom Watch, an organization of Israeli women who report on treatment of Palestinians at West Bank checkpoints, and Palestinians complain that Jewish settlers who share the buses with them in the evening have called Israeli security authorities to remove Palestinians on buses crossing through Israeli-only check points, who are then forced to walk two miles to a separate crossing point.

The problem is overcrowded buses, explains one Israeli woman waiting for the bus back to the settlement of Alfei Menashe from Kfar Saba from her clerical job in Kfar Saba. "They are humans too, but we need to get home. Someone needs to make order," says the woman, who declined to give her name.

A spokesman for the settlers council in the northern West Bank said the two populations don’t have need for the same buses and that settlers have been unfairly accused.

"In the past local Arabs who did not have work permits to enter Israel had tried using Israeli public buses to pass through check points and that was discovered," wrote David Ha’ivri, of the Shomron Regional Council’s liaison office in an email. "These issues are not 'settler's' concern per se, they are issues dealt with by the IDF."

Back on the 210 bus to Eyal, Middle Eastern music was playing to a half-full bus of middle aged men who fit a profile that is classified as a low security risk.

"It’s ironic," notes Mussa Mohammed, a tile layer from Nablus. "Inside Israel we are free to ride the buses and train, but on the way back to our homes in the West Bank we are separated out."

Israeli Prime Minister Benjamin Netanyahu is still without a coalition more than a month after winning parliamentary elections, but amid the political horsetrading the next government's agenda is coming into view.

While the Israeli leader initially called for a super-sized coalition to grapple with foreign foes like Iran and regional instability, it increasingly appears that a divisive domestic issue – entitlements for the ultra-Orthodox – will be a top priority. That will push the peace process further onto the back burner as President Obama prepares to make his first visit to the country as president, which many hope will spur a renewed push for Israeli-Palestinian peace.

Mr. Netanyahu’s coalition-building effort has been rattled by an unexpected alliance between two ascendant political parties which, despite their contradictory views on the Palestinians, have doggedly pursued a joint demand to end draft exemptions for the ultra-Orthodox, or Haredim.

With the deadline for coalition negotiations two weeks away, it looks like he won’t be able to form a majority government without them.

The axis between Yesh Atid, a centrist party that supports a Palestinian state, and the pro-settler Jewish Home party, which believes in annexing most of the West Bank, brushes aside a longstanding divide between hawks and doves. It also shows starkly that the Israeli public is more focused on socioeconomic issues than Arab-Israeli peace.

"This is a strange and wondrous moment in Israeli history…. For the first time we have a coalition of parties driven by a domestic agenda," says Yossi Klein Halevi, a senior fellow at the Shalom Hartman Institute in Jerusalem.

"The political system has always deferred dealing with long-festering domestic problems because of external threats and emergencies. Those threats certainly exist today, but what has changed is that the Israeli public is demanding of its leadership that it learn how to walk and chew gum at the same time: 'Deal with our external threats, but don’t defer dealing with our internal problems.' "

The shift reflects both exhaustion and pessimism about Israel’s ability to solve the decades-old conflict with the Palestinians, even amid rising fears that a new intifada, or uprising, might erupt and that the two-state solution could be rendered unworkable. That change coincided with a rising concern about bread-and-butter issues, which first came to dominate the public agenda in summer 2011, when hundreds of thousands of Israelis staged street demonstrations over cost-of-living issues.

'Sharing the burden'

During the election campaign, Yesh Atid championed the middle class and the value of "sharing the burden," a code for ending government entitlements to the ultra-Orthodox that allows the burgeoning Israeli group to stay out of the army and the workforce in favor of religious study. Jewish Home, a party of Israeli religious nationalists, promised to block surging housing prices, and also supports integration of the ultra-Orthodox into the mainstream.

In coalition negotiations, both parties focused on reforming the draft, an issue that bridges much of the right and left, secular and religious.

Political commentators yesterday speculated that Netanyahu would partner with Yesh Atid and Jewish Home, while leaving the ultra-Orthodox out of the coalition.

"Some people believe that real peace isn’t expected, and because of that we can deal with domestic issues like the draft, and entitlements for the ultra-Orthodox," says Avraham Diskin, a professor of political science at Hebrew University in Jerusalem.

When Yesh Atid and its charismatic leader Yair Lapid surprised pollsters with a second-place finish last month, it stoked hope that he would help moderate government policy toward the Palestinians and restart peace negotiations after being stalled for five years.

But cooperation with the Jewish Home seems to indicate that is not Mr. Lapid's priority. In a gesture to his ally, Lapid recently asked parliament members from his party not to participate in a tour sponsored by a pro-peace activist group. It was a reminder that the peace process was barely discussed during the election, and that parties that championed it fared poorly.

"The Israeli public didn’t vote on the two-state solution. It wasn’t a topic in the election," says Tal Shalev, a political reporter for the Walla news website. "The two big issues are the economy and the Haredim."