With negotiations hopelessly stalled and the deadline for a potential confrontation at the United Nations in September rapidly approaching, the Israeli government apparently decided that now would be the appropriate time to announce a major expansion of one of its most provocative settlements. Interior Minister Eli Yishai said last week that final approval has been given for 900 new units in the Jerusalem "Har Homa" settlement, an area known to Palestinians as Jabal Abu Ghneim.

All Israeli settlement activity is problematic because it makes an eventual border agreement more difficult and increases the size of Israeli constituencies opposed to territorial compromise, but Har Homa is no ordinary colony. It is miles from the centers of Israeli government in West Jerusalem and the Holy Basin in occupied East Jerusalem, the two areas that define the city in the public imagination. Har Homa lies at the extreme southwest corner of the large chunk of West Bank territory Israel redefined as "municipal Jerusalem" after seizing the territory in 1967. It is a shiny hilltop redoubt with only one entrance, in many ways reminiscent of a fortified castle. It cuts so deeply into the West Bank that it towers directly over Bethlehem, one of the most important Palestinian cities, and the new housing units will occupy an additional ridge. If completed, Har Homa would almost close the ring of settlements cutting off the rest of the West Bank from East Jerusalem. The apparent purpose is to put to rest any notions that Jerusalem can serve as the capital of a Palestinian state as well as the state of Israel.

With breath-taking cynicism, Yishai claimed that the cost-of-living crisis and housing bubble, which has spurred escalating protests and sit-ins across Israel, caused Israel to go ahead with this particularly controversial project. In announcing the decision, he said that "the real estate crisis is serious and we shall not halt projects" and that the move is merely part of "an effort to enable all Israeli citizens to purchase an apartment." But given that the economic crisis is about the prices of housing, student fees, and cottage cheese, and not about the number of houses as such -- and given that there is plenty of space in Israel where the government could build houses -- nobody is buying this argument, above all because there is no more sensitive or strategically significant area anywhere under Israeli control, except the Old City of Jerusalem itself.

The expansion in Har Homa is not only highly damaging to prospects for peace, but it also taps into the deepest Palestinian fears of relentless and carefully choreographed settlement activity designed to permanently foreclose the possibility of their meaningful independence. The bitterest experience for Palestinians in their dealings with Israel since negotiations began in 1993 was the doubling of the number of settlers in the occupied territories from 200,000 to 400,000 during the 1990s, when they believed they were negotiating an end to the occupation. Not only did the occupation not end and no Palestinian state get created, but the number of settlements and settlers greatly increased throughout the entire era of the "peace process." Including East Jerusalem, they now number more than half a million.

Har Homa, which didn't exist before 1993, as Jerusalem expert Daniel Seidemann correctly points out, "is viewed by the Palestinians as the quintessential post-Camp David unilateral act." It will be difficult for any Israeli government to agree to cede control of it, but almost impossible for Palestinian leaders not to insist on that very point, especially because the area is crucial to connecting Jerusalem with the rest of the West Bank. It has been a sticking point whenever raised in border negotiations. For Palestinians, an economic crisis in Israel being used to justify the most damaging of land grabs only reinforces their sense of powerlessness and the urgent need to find some means of confronting an unacceptable status quo.

The Har Homa announcement is particularly ironic because Palestinians are being lectured ad nauseam by Israel and the United States about their supposedly "unilateral" initiatives at the United Nations in September involving some sort of acknowledgment of Palestinian statehood. Of course, Israel settlement activity is without question unilateral -- as well as a violation of the Geneva Conventions, the Roadmap of the Quartet, and many other crucial obligations. Palestinian U.N. initiatives may be outside the context of negotiations, but are not in fact unilateral, because the United Nations is a multilateral body.

In an effort to stave off a damaging confrontation at the United Nations -- and to fend off the threat of shifting the issue to a multilateral forum beyond its control -- the United States has been trying to find a way to revive the bilateral negotiating process it has overseen since 1993. In May, U.S. President Barack Obama proposed a generalized vision for new talks, based on the 1967 lines with mutually agreed land swaps and focusing on borders and security first. Palestinians cautiously welcomed the idea but asked for clear terms of reference. Israeli Prime Minister Benjamin Netanyahu, however, categorically, and even angrily, rejected the formula.

With September approaching, however, Palestinian leaders are making it clear that they intend to go forward with some U.N. initiative -- though precisely what is not yet known -- unless they are offered a clear reason not to do so. They have understandably said that though their first choice is to resume negotiations, they find the present impasse intolerable and are determined to find some path forward.

Everyone faces a substantial "day after" problem in September. Any U.N. initiative, whether or not it is regarded by the Palestinians as a diplomatic success, will not change realities on the ground. Whatever happens in New York, if life for Palestinians under occupation doesn't change or -- because of American or Israeli retaliation -- actually gets worse, an outpouring of widespread public anger is a real possibility. Some Palestinian officials have been encouraging mass nonviolent demonstrations coordinated with a U.N. initiative. But Israeli troops facing large Palestinian crowds, even nonviolent ones, are likely to resort to the use of force. And there are numerous Palestinian groups committed to armed struggle that would undoubtedly quickly move to take advantage of a chaotic or confrontational environment.

Leaks from the Israeli prime minister's office have suggested that Netanyahu may now be willing to agree to talks based on the 1967 borders as long as the Palestinians recognize Israel as a "Jewish state," whatever that might mean. The Obama administration has not confirmed the existence of such an agreement, and nothing remotely resembling a framework for negotiations or terms of reference has been made public. The reported proposal is a non-starter, though, because Netanyahu would basically be asking the Palestinians to agree to a very significant concession on an issue that was never raised until 2007 in exchange for a reaffirmation of what has been understood by all parties as the basis of negotiations since 1993. It's a perfect example of asking for something very substantial in return for nothing whatsoever.

Some formula may yet be found, however, because almost all Palestinian options at the United Nations would constitute symbolic victories at most, but incur substantial costs and risks. A U.S. veto in the Security Council -- or even a General Assembly vote pitting a large bloc of developing states against most of the West and Japan (which Israel is likely to claim as a coalition of the "civilized world" in its camp) -- would do little to advance the cause and could actually damage chances for achieving Palestinian independence.

A losing confrontation with the United States over the issue of statehood in the Security Council would be particularly dangerous to the Palestinian national interest. The U.S. veto in February of a resolution on settlement activity effectively left Israel with a free hand to build with barely any protests, at least until now.

The Har Homa announcement, however, may be a step too far. Every U.S. administration has been strongly opposed to settlement activity in this area because it prejudices the outcome of negotiations on Jerusalem and greatly damages the prospects for an agreement. In 2008, Secretary of State Condoleezza Rice accurately described Har Homa as "a settlement the United States has opposed from the very beginning." It is imperative that the Obama administration, no matter how allergic it may have become to the settlement issue, also takes a firm stance on this latest plan.

Expanding the settlement at Har Homa is unlikely to help the Israeli government mollify the huge cost-of-living protests. But it will certainly give the Palestinians yet another reason to regard the present situation as not only intolerable but desperate, and to press forward with a U.N. initiative in spite of the substantial risks. The United States and others wishing the Palestinians to refrain from any ambitious U.N. initiative in September need to provide their leaders with a politically plausible and diplomatically meaningful reason to do so. With its new announcement about Har Homa, the Israeli government could not have given Palestinians a greater incentive to despair about where both present realities and the moribund American-led peace process are taking them, and, in spite of the considerable costs at stake, go ahead and roll the dice at the U.N. casino in New York.