One of the most important political dynamics in the Middle East these days is the escalating war of words between the United States and Israeli Prime Minister Benjamin Netanyahu over the international demand to freeze Jewish settlements and colonies in Arab lands occupied in 1967. It is surprising yet heartening that the Obama team has come out strongly demanding that Israel freeze the expansion of all settlements, with no exceptions for natural growth, pre-approved projects or anything else.

More unusual has been President Barack Obama’s public reiteration of this position, including in the presence of the Israeli prime minister in the White House. The US took this stance one significant step forward a few days ago when it publicly called for the reversal of official Israeli approval for building a new Jewish housing project in the Sheikh Jarrah neighborhood of Arab East Jerusalem.

Settlements expansion is only one of many core issues comprising the Palestinian-Israeli and Arab-Israeli conflict; yet it has become the litmus test of three critical dynamics that may determine whether this conflict moves toward peaceful resolution or continues to radicalize and destabilize the entire Middle East as it has for over 60 years. These three are US-Israel relations, Israeli compliance with international laws and norms, and the capacity of the Arabs to engage meaningfully in promoting a credible peace process.

Obama has taken a very strong, public position against continued Israeli colonization, probably because he understands that this position enjoys the backing of international law, public opinion in America and every other country in the world, and probably a majority of Israelis themselves who would sacrifice their colonization program for a genuine, lasting, and comprehensive peace agreement with all the Arab neighbors.

If Obama runs into problems with his economic reform and health care programs, the pro-Israeli zealots in the United States might jump on the president’s vulnerability to help him inside the US if he backs off pressuring Israel on its colonization ventures. Much of this will depend on how the debate is framed, which raises the second point: Will Israel finally be forced by global pressure to comply with international law and United Nations resolutions, or will it forever decide where it complies and where it defies the rest of the world’s sense of right and wrong?

A few days ago, replying to Washington’s demand that Israel stop colonizing Arab East Jerusalem, Netanyahu said: “United Jerusalem is the capital of the Jewish people and the state of Israel. Our sovereignty over it cannot be challenged. We cannot accept the idea that Jews will not have the right to live and purchase in all parts of Jerusalem.”

Well, the whole point of living by the rule of law is that your rights are restricted by the rights of others – in this case, Israel’s right to live in West Jerusalem is restricted by its acceptance of the rights of the Palestinian Arabs to enjoy sovereignty in East Jerusalem. Israeli settlements and colonies are an illegal, criminal activity, and even the US now has the basic decency and courage to say this out loud. Israeli “sovereignty” over all of Jerusalem is rejected by the entire world, other than a few Christian fundamentalist nut-cases in the United States and their equally extremist Likud-run pro-Israeli lobbyists.

The third issue that must be clarified soon is whether the Arab world will watch this political drama on television as disinterested bystanders, or will get serious and engage in tough diplomacy. To do so, it must start by clarifying to Israel the Arab will to coexist on the basis of equal rights for Arabs and Israelis, so that the Arabs do not have to perpetually make one-sided concessions due to their collective weakness.

Obama and his family touched the world earlier this month when they visited Cape Coast Castle in Ghana. This former depot of the trans-Atlantic slave trade still reminds the world of the evils and inhumanities of the colonial era. Obama said there: “As painful as it is, I think that it helps to teach all of us that we have to do what we can to fight against the kinds of evils that sadly still exist in our world, not just on this continent but in every corner of the globe.”

One of those evils in our corner of the globe, in the view of the entire world, is Israeli colonization in occupied Arab lands that many of us see as perhaps the last, lingering remnant of the sort of 18th and 19th century colonization that included the transatlantic slave trade.

Our common challenge is to reconcile the two legitimacies of Israeli and Arab nationalism in Palestine by creating two adjacent states and resolving the refugee issue. The twin first steps to this must be Arab acceptance of Israel – this has been offered and reiterated repeatedly since 2002 – and Israel’s reciprocal acceptance of Palestinian statehood through the proxy act of agreeing to cessation of Jewish colonization as a first step on the road to genuine peace and coexistence.