JERUSALEM, March 19 -- The foreign minister of Israel's incoming government lives in a West Bank settlement and will begin life as a diplomat battling the perception that he is anti-Arab.

A leading contender to become defense minister once characterized the two-state solution that forms the basis of U.S. and international policy toward Israel and the Palestinians as "a story the Western world tells with Western eyes." And the potential make-or-break votes in the country's new parliamentary coalition belong to legislators from religious parties that would like to expand settlement construction in the occupied West Bank.

Israel's next government seems tailor-made for conflict with an administration in Washington that supports a Palestinian state and is expected to push for progress on drawing its borders. Prime Minister-designate Binyamin Netanyahu is himself a skeptic when it comes to Palestinian statehood and has referred to U.S.-backed peace talks as a waste of time.

While Netanyahu has compromised in past dealings with Washington -- an earlier term as prime minister was cut short after he made land concessions at the urging of President Bill Clinton-- his new coalition partners may not leave him much room to maneuver.

"The more narrow the government the more difficult it will be for Netanyahu to make some gesture towards the U.S.," said Gerald Steinberg, chairman of the political science department at Bar-Ilan University outside Tel Aviv. On issues such as settlements, if pressure comes from Washington, "it is likely to lead to a major confrontation."

Israel and the United States still agree on a broad set of issues -- including some, such as curbing Iran's nuclear plans, that Israel's new government wants at the top of the agenda. But Israeli, Palestinian and U.S. analysts and officials agree that the two governments will likely be at odds on questions of West Bank settlements and movement toward a Palestinian state.

From the Palestinian perspective, a push from Washington is seen as the most likely chance for progress after eight years in which President George W. Bush was widely perceived as unwilling to challenge Israeli positions.

"They cannot avoid the challenge forever," said Qwais Abulaila, a member of the Palestinian Legislative Council. "If the United States wants to keep its credibility, they have to have the courage to confront them."

Already, there has been controversy over a possible Netanyahu national security appointee, Uzi Arad. He has been denied a U.S. visa because of a meeting he had with a Pentagon employee involved in leaking information. Arad, a former Mossad agent, has said he did not receive any classified information and expects the visa problem to be resolved.

The election last month that put Netanyahu's Likud party in position to govern followed a period in which Israelis had soured on prospects for a negotiated peace. Israel dismantled settlements and withdrew from the Gaza Strip in 2005, but the move did not bring the expected quiet. Rockets and mortars fall regularly into Israeli towns. The Islamist group Hamas won the 2006 Palestinian parliamentary elections and, about a year later, forced the rival Fatah faction out of Gaza.

In the context of that history, said Netanyahu senior adviser Ron Dermer, there is far more to discuss than Israeli settlement construction in the West Bank.

"My impression is that the number of people who believe that issue is the difference between peace in the Middle East and war are few and far between, after all that happened in Gaza," Dermer said.

During the U.S. presidential campaign, Barack Obama criticized "aggressive settlement construction," and during a recent visit to Israel, Secretary of State Hillary Rodham Clinton said Israeli plans to destroy homes in East Jerusalem violated agreements the country had made to negotiate the disposition of disputed territory.

"Clearly this kind of activity is unhelpful and not in keeping with the obligations entered into under the 'road map,' " Clinton said, referring to the long-stalled peace plan.

As one of his first acts, President Obama appointed as his Mideast envoy former senator George J. Mitchell of Maine, who in the waning days of the Clinton administration led an international call for a settlement freeze -- including the "natural growth" that many Israelis feel should be allowed in established settlements. That didn't happen: The Israeli population in the West Bank rose from 191,600 at the end of 2000 to 289,600 at the end of 2008, according to Israel's Central Bureau of Statistics, a rate of growth more than double that of the nation as a whole. So far the White House has not released a detailed position on the issue, and it will be one of Obama's more closely watched first steps.

Yossi Klein Halevi, a senior fellow at Israel's Adelson Institute for Strategic Studies, said Israeli public opinion -- and the regional security situation -- is such that Obama may find more room for compromise than expected. Netanyahu, he said, was elected mainly by people worried about Iran and that country's influence over Hamas and Lebanon's Hezbollah, not by those demanding a hard line on settlements.

Some settlement construction will continue and "there's no way to avoid some form of clash," he said. But "if Obama is supportive of Netanyahu's security agenda, that is the basis of a discussion."

Netanyahu's coalition is not yet final, and he remains in talks with the country's more moderate parties in hopes of creating a broader base in the new parliament. But to assemble a majority, he has had to pull from conservative and religious factions. Depending on the final talks, he could end up with a 65-vote bloc in a 120-member parliament.

Broadly critical of U.S.-backed efforts to forge a Palestinian state, Netanyahu's coalition partners have differing views on the specifics of how to deal with the Palestinians.

Foreign Minister-designate Avigdor Lieberman says he would endorse a Palestinian state as a way to redraw borders to leave Israel with fewer Arabs, an idea that is out of step with most internationally accepted peace proposals. Israeli Arabs, a majority of whom consider themselves Palestinians, make up about 20 percent of the population, and Lieberman would like to include the parts of the country where many of them live in a future Palestine while bringing Jewish settlements into Israel. Lieberman himself lives in the settlement of Nokdim, south of Bethlehem, but has said in published interviews that he would be willing to move as part of a land swap.

A top contender for defense minister, Moshe Yaalon, has opposed territorial concessions to the Palestinians for security reasons. As military chief of staff under then-Prime Minister Ariel Sharon, he opposed the Gaza withdrawal and lost his job. A collection of religious parties expected to be in the coalition hold out hope that settlements can be expanded and more of the West Bank brought into Israel.

Netanyahu himself, said Dermer, "believes the Palestinians should have all the powers necessary for self-governance," but "without the handful of powers that could be used to endanger Israel." That could mean, for example, a state with no army and limited control over its airspace.

Although not opposed to political negotiations, Netanyahu has said he wants to concentrate on Palestinian economic development as a way to build civil institutions and improve relations.

Former Israeli justice minister Yossi Beilin, who helped negotiate the Oslo and Geneva agreements with the Palestinians and remains active in efforts to push toward Palestinian statehood, said that if Netanyahu is serious about an "economic peace," it would mean lifting West Bank roadblocks that hinder Palestinian movement and commerce, allowing easier movement of Palestinian workers into Israel, and providing a freer exchange of goods between the two societies.

Obama "can go a long way with him," said Beilin, considered a stalwart of the Israeli left. "If there is a determined American administration, there is a chance."