Will President Barack Obama manage to resolve the intractable Arab-Israeli conflict, which has held the world hostage for the past 60 years? Or will he be driven by events to revert to the more modest aim of conflict-management, which has characterised the policies of his predecessors in the White House?

This question was the underlying theme of a conference at the Nato Defence College in Rome on March 4-5, attended by participants from the Middle East, the United States and Europe.

One outcome of the debate was that, whereas Arab expectations of Obama are high, most Israelis and Americans present predicted that 'realities on the ground' would limit what Obama would be able to accomplish. The gloomy conclusion was that he was unlikely to be able to impose peace.

The focus of international attention is now on Likud leader Benjamin Netanyahu, who seems certain to be Israel's next prime minister. Netanyahu's first choice had been to form a national unity government with Kadima and Labour, no doubt hoping that such a government would project a moderate image and be better able to deal with American pressure. But Tzipi Livni of Kadima and Labour's Ehud Barak refused to join his coalition, perhaps calculating that an unstable right-wing government could not long survive, so giving them a chance to return to power at a later date.

Netanyahu is indeed at the mercy of small religious parties and of far-right coalition partners, such as Avigdor Lieberman's Israel Beiteinu. His freedom to manoeuvre on both foreign and domestic issues is restricted. His dilemma will be how to square the circle between US pressure to negotiate with the Palestinians and with Syria and the constraints of his narrow coalition. Can he avoid friction with the United States and yet survive politically?

It is expected that Netanyahu will seek to escape from this dilemma by going slow on both the Palestinian and Syrian tracks. He is almost certain not to agree to embark on permanent status negotiations with the Palestinians, to which he has always been opposed. He will also not be ready to conclude a full peace with Syria, since this would inevitably involve paying the price of full withdrawal from the Golan.

To the Palestinians, Netanyahu will offer an "economic peace" - as has already been widely reported - that is to say an improvement in their economic conditions by giving them greater freedom of movement within the West Bank and access to it. In other words, he will not offer the Palestinians a permanent status agreement, only some further "arrangements" of a practical nature.

To Syria, instead of full peace and withdrawal, he may propose a non-belligerence agreement, linked to an Israeli withdrawal from a northern strip of the Golan, an area now inhabited by Druze, and where there are no Israeli colonists.

Few observers believe that either proposal will arouse much enthusiasm or be willingly accepted by either the Palestinians or Syria. But Netanyahu seems in no hurry to make peace. His world view is that Israel's neighbours have not yet fully accepted it and that it must therefore stand firm until its neighbours change their mind.

This attitude is likely to result in a period of turbulence in Israel's relations with the United States. Israel is already losing some of its intimacy with Washington, and can no longer expect carte blanche for its military adventures. The relationship is waning. It looks as if several issues may create even further tension.Israel's West Bank colonies are likely to be a source of friction. The question is whether the US will insist on an immediate freeze on colonies and the removal of outlying outposts. This will be the real test of Obama's determination.

The problem, however, is that even if Netanyahu were persuaded to dismantle some colonies - which is unlikely - his government would fall if he attempted to do so. Secondly, it would be difficult, if not impossible, for any Israeli government to use the army to dismantle colonies, since some 30 to 40 per cent of its army officers are said to be from religious backgrounds and would therefore be inclined to side with the colonists. This fact alone would seem to rule out any progress towards peace with the Palestinians for the next several years.

Patrick Seale is a commentator and author of several books on Middle East affairs.