Tzipi Livni, the leader of Israel's Kadima Party, the largest opposition party in the Knesset -- and the largest party in the entire Knesset, in fact -- sat down last month with James Bennet, the editor of The Atlantic (and a former Jerusalem bureau chief of The New York Times) and with Goldblog for an extended conversation about the tense relations between the Obama Administration and the Netanyahu government, and about Israel's sinking image. She was tough on Netanyahu -- stating that he wants to turn Israel into a "Jewish ghetto." Though she warned us against turning our meeting into an "oy vey conversation," she did express her worries about how Israel's reputation in the world is hurting it even among American Jews. And most notably, she endorsed the idea that pressure from President Obama on Prime Minister Netanyahu is a service to Israel, saying that it is pressure from the American Administration that caused Netanyahu to endorse a two-state solution to the Middle East crisis."When Obama pushed Bibi, Bibi made some steps forward," she said.

Here is an edited transcript of our conversation.

QUESTION: The relationship between American Jews and Israel seems to be under stress, particularly after Prime Minister Netanyahu's contentious visit to Washington a couple of months ago, in which he seemed to be chastising President Obama. Do you think the Prime Minister understands what's happening in the American Jewish community?

TZIPI LIVNI: The prime minister, deliberately or not, puts American Jews in a very complicated situation. I heard this from some of those I have met with in the past few days -- for them to see this clash between an Israeli prime minister and an American president, this puts them in a situation in which they need to choose a side, and they don't want to be in this situation.

Q: Well, it's not that difficult for many people. Remember that almost 80 percent of American Jews voted for President Obama, so it's not so complicated for some of them.

TL: Even if you voted for President Obama, I think the situation is complicated for you when you have the Israeli prime minister on one side and the American president on the other. It's a nightmare, because we are actually on the same side. It's not Israel vs. the U.S. and vice-versa. We cannot afford this. This is something new. It forced American Jews to take sides.

Q: How do you understand the prime minister's strategy?

TL: Netanyahu believes in hasbara (a Hebrew word that is a cross between "explanation" and "propaganda.") Hasbara is explaining, it is not policymaking. Hasbara is not everything. Hasbara is just making great speeches. And it's not enough. There is an intimacy and trust that is needed between leaders, between their assistants and advisers. Usually you have the real substance behind closed doors, and the press conferences, you have niceties, nice photo ops. But here everything is reversed.

Q: What is your view of how young American Jews relate to Israel and to Zionism today?

TL: Something happened to the State of Israel. What was morally obvious in 1948 is not so obvious anymore. When the State of Israel was established, it was, for the parents and grandparents of these young Jews, a miracle. It was David and Goliath. We were the just cause. It was about values. We were small, but we were the good guys in the world! And we needed to fight for our existence and we succeeded in doing so, so we were both beautiful in terms of the values we represented, and strong enough to confront our enemies.

This was great, but time passes and now we have different trends. One is that there is now in the world of images and perception the reversal of the story, where Israel is the Goliath. And the conflict is usually the picture of Israeli soldiers and the Palestinian child, the tank versus the stone.

So young Jewish people have some difficulties in explaining this and advocating for this. Now, Israel didn't make the decisions that we needed to make. On the one hand, we talk about our aspirations for peace, but on the other hand, we didn't make the decisions necessary to divide the land with the Palestinians. We didn't talk about two states for two peoples. Our leaders are fighting for the right of Israel to build and expand settlements. So without real vision, what is Zionism today? Whether it is about a homeland for the Jewish people, a democracy in the Land of Israel, or is it about Jewish sovereignty over the entire land of Israel? We didn't make this choice internally, so it's difficult for Jews outside Israel to be advocates. On top of this, you have the trend in Israel in which the ultra-Orthodox have the monopoly on Jewishness of the State.

Q: Do you mean how Judaism is defined?

TL: It's about everything. You have American Jews, Reform or Conservative, and they feel that Israel is becoming different, it is more difficult for them to feel connected to something that tells them they are not Jewish enough. I mean, we heard this during the conversion bill controversy, when you had these rabbis saying that people who convert outside of Israel can't make aliyah (move to Israel). And now you have the Ministry of the Interior rewriting the IDs, the nationality line in IDs, whether you are Jewish or not, and they exclude anyone who is not Jewish.

I'll tell you a story. When I became foreign minister I had a meeting with one of the foreign ministers of Europe, I don't want to say who. I was told he's anti-Israel. Even Shimon Peres gave up on him. But I wanted to meet him. We had a private conversation, and I said, 'Listen, this is a personal meeting, I want to tell you about myself. I was born in Israel, my parents came in 1925. I told him this because I wanted to remove for him the impression that exists in Europe that Israel was created because of the Holocaust. I told him I remember 1967, the war, that we came back to places that are part of our history. We didn't want the war, we didn't want to be there, we didn't initiate the war, but we were forced to defend ourselves. And now we are making the decision to have two states. I did all this. Then he looked at me and said, `You know why I am so angry at Israel? Because I volunteered on a kibbutz. You were such a great country. I was proud to be there. I loved you. But what has become of you?'

And I think, in a way, this is something that happens in some parts of the Jewish community.

Q: Is it possible that what we're seeing is the beginning of a break-up between American Jewry and Israel?

TL: I hope not. I really hope this isn't going to be an "oy vey" conversation.

Q: We're basically an oy vey magazine. This is actually a national security question. Can Israel afford to lose the active support of much of American Jewry?

TL: Is this the question between those who say we need all the Jews to make aliyah, and the others who say we need the Jews to stay in their countries and be advocates?

Q: I'm not worried about mass aliyah as an issue --

TL: You know, it's not a matter of whether we can afford it or not. This isn't an issue just about the existence of the state of Israel, and having people arguing for Israel with the American administration, and AIPAC, and so on. I believe that we can be fighting for the physical existence of Israel, and winning that battle, but at the same time losing the raison d'etre of Zionism. I believe that this is Israel's responsibility. I want Israel to be a normal state, part of the international community, part of the free world, but unique in terms of the Jewish people. I want both. Yes, we need world Jewry, but this is not just a political question. It's about the meaning of Jewish state.

Q: What do you think are the responsibilities of Diaspora Jewry to Israel?

TL: When someone says they don't want a connection to Israel, my emotional reaction is not being angry. It's sadness. It breaks my heart. I don't see this in terms of responsibility. I don't feel that somebody is responsible for me, or should be responsible for defending Israel. This is not the dialogue I want to have with world Jewry. I don't want to lose them. I feel that decisions we make as Israeli leaders, not the daily decisions, but the big decisions, my responsibility is to take into account the impact of my decision on world Jewry. I feel I am responsible for that.
The dialogue I don't want to have is about Israel just as a refuge. Israel isn't the most secure place on earth. It's not a matter of security and refuge and the Holocaust and all this. We are part of something.

We are part of a people. Israel should represent something more than a physical refuge, but a place of connection and of values. This is the new challenge of Zionism. I think Israel is strong enough to have Jews criticizing it as long as the criticism comes from within the family, in an understanding that while they are criticizing Israel, they are not undermining the basics of Israel's existence. Because we have these extremists in the region that are not willing to accept our existence in any way. I don't want those who don't accept Israel's right to exist. There is no use for a dialogue with them.

Q: How do you understand Bibi. You're both from the same ideological background (Livni's parents were stalwarts of Herut, Menachem Begin's party), but you've moved in a different direction.

TL: I believe what I do now represents the values of my parents. I believe that what I represent now is the need to have these values of Jabotinsky and Zionism living in harmony.

Q: Are you still a Jabotinskyite? (Vladimir Jabotinsky was the founder of revisionist, right-wing, Zionism, and ideological guide for Menachem Begin.)

TL: I quote Jabotinsky in almost every speech I give against Netanyahu. On everything. Jabotinsky was speaking about an Israel that was basically secular. He spoke of religion as something that kept Jewish communities together in exile before the creation of the state, but since a state was created -- he was saying this in the '30s -- we could create a state based on Jewish nationality and talk less about the religious part. When it came to Arabs, he was talking about the rights of the Jewish people in the land, but he spoke about the rights of minorities as well.

Q: But he also spoke about building an "iron wall" around Israel.

TL: Oh, let's speak about the iron wall. Has somebody read the line after he wrote about the iron wall? He wrote that the Arabs need to understand that we are strong, so that we should build an iron wall, that we be strong, that the Arabs can't throw us into the sea. And then he said, once the Arabs understand that we are here to stay, we should negotiate with them, reach an agreement with them.

Q: But do the Arabs understand the iron wall today?

TL: Those we are negotiating with understand that Israel is here to stay.

Q: And you're sure of this?

TL: Yes. Not Hamas.

Q: You're sure that there's no plan on the part of seemingly moderate Palestinians to try to take apart Israel in stages?

TL: I know that they know we are strong enough. And our relations with the United States are part of this. This is one part of the answer. Whether some of them are thinking about stages? Maybe. But this is our responsibility to take this into consideration and put into an agreement all the parameters to ensure Israel's security. But I think we already have built the iron wall, and I think Israel is being weakened now by the way Netanyahu speaks. The stronger he speaks, the weaker Israel is.

When Kadima left the government, the world was delegitimizing Hamas, Gaza was under siege, we were negotiating with the Palestinians, we were working with pragmatic Palestinians, our ability to act against terror came from our legitimacy. Now look what's happened. In the flotilla incident, after two minutes the world was against us.

Q: So Netanyahu is delegitimizing Israel?

TL: That's too exaggerated. Bibi Netanyahu is weakening Israel. The Israeli government doesn't give the right answer to delegitimization.

Q: Go back to Jabotinsky for a second. Are you saying you better represent the values of Jabotinsky than Netanyahu?

TL: Here's an image. In our youth movement, in my parent's generation, we had a song, "Both sides of the Jordan, this one is ours, and also the other one." But there's another line, saying basically, "Soon we will live happily ever after, the son of the Arab, the son of the Christian, and my son." The idea was always not to control others, but live together. Okay, so we know today we cannot live happily together between the Jordan and the Mediterranean, because we would lose the sovereignty of the Jewish state as such. So we need to divide the land. This is the way we live together, in a nice divorce.

Now, Netanyahu and I, we are looking at the region, we see the same issues, we see Iran, we see Hezbollah, we see Hamas, we don't trust them, and we see the situation as it is. But he's looking through different lenses at the same time. His answer is to sit still in an understanding -- and it is a false understanding -- that everything is based on anti-Semitism, delegitimization, that the whole world is against us, and that there is nothing to do about it. In a way, he takes Israel and changes it into a Jewish ghetto. Like we are waiting, you know, for the goyim, or expecting the goyim to come, and we should just wait until it's over. The Israel I know is strong and can change the trends against it.

When we understand that it's not only about survival, this will change the trend. I'm in politics because I think this can be changed. Political mistakes led us to this situation.

Q: What about the underlying trends in Israel that lead to right-wing policies?

TL: In Israel we also have different trends. Those Jews who came from Arab states (the Sephardim, or Mizrachim), came as traditional, but not ultra-Orthodox. Their rabbis were moderate, but over time they sent their children to Ashkenazi (European Jewish) schools that were more ultra-Orthodox and they didn't care about left and right in terms of peace and war. All they wanted was to keep their yeshivas going. Now what happened is that the Sephardim became more and more ultra-Orthodox, more 'Ashkenazi' from the religious point of view, and the Ashkenazi ultra-Orthodox became more right-wing from a political point of view. Now you add to this that the settlements have become not only an ideological issue for the national Zionist camp, but a housing issue also, because when you have people living in settlements, when people's children and grandchildren are living in settlements, when you hear your leaders talking about evacuating settlements, you understand this not only as politics but as a concern for your family.

Q: Where's the off-ramp for all of these negative trends? Is there one?

TL: There's a brighter side to this. People in Israel like to define themselves as right-wing because being right means that you are strong, you don't believe the Arabs, you are not as naïve as the Americans, you are a patriot, and it's great. But then, when you put on the table a plan that includes most of the parameters that would end the conflict, they support it. It's a matter of perception and images, and less of substance. And the good news is that this current government has a prime minister who was not willing to use the term "two states," and now they are talking in terms of "two states," because they understood that maintaining the status quo with the Palestinians means that there is no status quo with the United States. They understood that there is a price for not negotiating, or for not saying the right words. So this is the brighter perspective.

Q: You just suggested that when Obama pushed Netanyahu, people realized they needed to get a deal. Do you think that American pressure on Netanyahu has been constructive?

TL: When Obama pushed Bibi, Bibi made some steps forward. The American pressure led those who don't believe that time is of the essence to a better understanding that there is no status quo option. For Israelis, when they wake up in the morning and ask themselves, what is the general situation today, the litmus test for them is the health of the relationship between Israel and the United States.