Palestinian hopes for an independent state are growing dimmer all the time. Israel is pushing ahead with new settlements in the West Bank and asserting control over new sections of East Jerusalem, which the Palestinians claim as their capital. Meanwhile, peace talks — the best guarantee of a durable solution — are going nowhere.

Now comes another, potentially disastrous, blow. An Israeli government-appointed commission on Monday issued a report asserting that Israel’s 45-year presence in the West Bank is not occupation. The commission endorsed the state’s legal right to settle there and recommended that the state approve scores of new Israeli settlements. It proposed stripping the military of its authority to force settlers off land claimed by Palestinians.

Although nonbinding, the commission’s recommendations are bad law, bad policy and bad politics. Most of the world views the West Bank, which was taken by Israel from Jordan in the 1967 war, as occupied territory and all Israeli construction there as a violation of international law. The world court ruled this way in 2004. The Fourth Geneva Convention bars occupying powers from settling their own populations in occupied lands. And United Nations Security Council resolution 242, a core of Middle East policy, calls for the “withdrawal of Israeli armed forces from territories occupied in the recent conflict.”

The recommendations would annul a number of past Israeli Supreme Court rulings and orders, including a 1979 decision forbidding the expropriation of land for “military needs” when the real goal is settlement construction. It is alarming to see this latest attack on the court, which has tried to temper government excesses, ruling that several outposts and buildings constructed on private Palestinian land should be dismantled. Thirty families were evicted from five such buildings last month.

The commission, led by Edmund Levy, a former Supreme Court justice, was established in January under pressure from settlement leaders. If its conclusions are not firmly rejected by Prime Minister Benjamin Netanyahu, there is likely to be new international anger at Israel. That could divert attention from Iran just when the world is bearing down with sanctions and negotiations to curb Tehran’s nuclear program. It would also draw attention to a dispiriting anomaly: that a state founded as a democratic homeland for the Jewish people is determined to continue ruling 2.5 million Palestinians under an unequal system of laws and rights.

That is unsustainable, and it is damaging to Israel’s security and regional peace. Now that Mr. Netanyahu has expanded his ruling coalition, his excuse is gone for not ending his counterproductive settlement policy and using his new political clout to advance a peace agreement with the Palestinians.

The State Department rightly criticized the commission findings. “We do not accept the legitimacy of continued Israeli settlement activity, and we oppose any effort to legalize settlement outposts,” it said. Secretary of State Hillary Rodham Clinton will have a chance to drive that message home when she visits Israel next week.