Although, a very strong international consensus has emerged, over the past two decades, that the only practicable means of resolving the Israeli-Palestinian conflict is a negotiated agreement allowing for two states to live side-by-side, in peace and security, little progress has been made towards that goal.

Even the new designation by the United States of resolving the conflict as a national security priority and strategic imperative has yet to provide any grounds for greater optimism.

It is also clear to most sensible observers, that the only plausible alternative, to a negotiated peace agreement is an intensified conflict, that is likely to drift away from a political dispute between two national groups about land and power, in a limited territory, and towards a broader and intractable religious conflict, over holy places, and the will of God.

Both, the importance, and urgency of resolving this conflict have never been more widely accepted and yet the obstacles – opposition from extremists on all sides, the growing settler population, the difficulty of compromise on Jerusalem – seem as daunting as ever.

American policy since the fall of 2009 focused on attempting to revive direct negotiations, on the apparent assumption, that they will, then produce, a dynamic of their own and open new diplomatic possibilities. At the time of writing, the Palestinian leadership is still seeking a formula to allow it to agree to direct negotiations in spite of powerful domestic political opposition.

Yet, it would appear that in effect, the United States has created a quid pro quo, although not between the Israelis and the Palestinians, but between each of the parties, and the Americans.

The Palestinians have no choice but to reenter direct negotiations because they need American support to achieve almost anything, and their only real tool, at the moment, to improve their hand vis-à-vis Israel, is to leverage the American national security interest in resolving the conflict. So their agreement is virtually guaranteed.

On the Israeli side, it seems that President Barack Obama left no doubt in the mind of Prime Minister Benjamin Netanyahu, that the United States will not accept new land expropriations in the West Bank or settlement activity in Arab neighborhoods of East Jerusalem after the so-called “settlement moratorium” expires on September 26.

Indeed, Interior Minister Eli Yishai has publicly complained that Netanyahu will only permit building in the large settlement blocs, and other areas, that are generally considered part of a future land swap. So, counterintuitively, it is actually possible there will be less settlement activity in the 10 months, following the end of the moratorium, than during the 10 months of its supposed enforcement.

However, it is very difficult to imagine, under the present circumstances, any major breakthrough emerging from direct negotiations between Palestinian and Israeli leaderships that are both politically weak and appear to have so many irreconcilable differences about final status issues, above all Jerusalem. For this reason, Palestinians are no longer content to rely solely on diplomacy, which requires Israeli cooperation, and American determination.

In August 2009, the PA cabinet adopted a program of unilateral Palestinian state and institution building in the occupied territories. The idea is to create the framework, and the institutions, of a future state, in spite of the occupation and in order to end the occupation. It could be considered the Palestinian answer to Israeli settlement activity: unilateral changes on the ground, but in this case, consistent with international law, not threatening to any legitimate Israeli interests, and promoting, rather than hindering the prospects for peace.

Obviously, Palestinians are going to acquire great deal of international financial aid, technical support and political protection, if this policy is going to emerge as the game changing strategy it ought to be. It offers a parallel track, complementary to diplomacy, which can move the ball forward in very significant and even potentially dramatic ways when negotiations move very slowly, if at all. Unless there are unexpected breakthroughs, it may be that the most important role of the negotiations, at this stage, is to support and legitimate the state and institution building program.

However, since the conflict can only be resolved by a negotiated agreement, at some point, that dynamic would have to be reversed and the state building effort serve as a complement to a suddenly reinvigorated diplomatic track. Ultimately, what is required is convergence between the bottom-up approach of the state building program, and the top-down international diplomacy, that will ultimately resolve the conflict through a negotiated agreement.

Almost all the relevant parties have the right stated policy, in favor of a two state solution. Even Prime Minister Netanyahu acknowledged this goal in his speech last year at Bar Ilan University. For their part, the PLO and PA leaderships have gambled everything on eventually achieving a peace agreement with the Israelis, and, if this policy fails neither organization is likely to survive the blow.

The problem across the board, not only in Israel and among the Palestinians, but in the United States and elsewhere, is to reconcile policy with politics that continue to prevent serious movement towards a negotiated resolution. The best course of action for the United States is to maintain its special relationship with Israel based on assurances of Israeli security, but make it clear to the Israelis, that ending both the conflict and the occupation are essential to American national security and are not optional.

The Obama administration is right to insist that Palestinians reenter direct negotiations, but they should recognize that the Palestinians are correct that to succeed, they must be based on clear and specific terms of reference, and that a mechanism, probably American-led, for holding the parties accountable for fulfilling their agreements is absolutely essential.

Palestinians must understand that the main leverage they have, at the moment, is the American interest in ending the conflict, and must therefore be as cooperative, and forthcoming, with the United States, as possible. It is essential that they present themselves as real partners to the United States in the pursuit of a peace agreement, willing to take bold, risky and costly political actions that serve the interests of this partnership.

Israelis have a simpler task: as a society, they have to honestly ask themselves what their vision of the future is. No one can say with any certainty what the present Israeli government really wants the situation to look like in the next two or three decades, and this ambiguity, while it may be politically convenient for politicians, is preventing Israeli society for making the difficult choices it must, in its own interests.

As for the international community, at large, it can, through the Quartet, continue to play an important role in supporting American efforts at the diplomatic level.

But, for the meantime perhaps even more importantly, it must greatly intensify support for Palestinian state and institution building in the West Bank. Preparing for independence will allow the Palestinians to bring that independence forward, and creating effective state institutions makes it far more likely the state will eventually be established. More importantly, this work is essential to ensure that the Palestinian state is a successful, stable, secure and well functioning one, something both Israelis and Palestinians need to be convinced of, if a peace agreement is to finally be achieved.