IN so far as you can have one, Isaac Herzog is an Australianist in the Israeli Government.

He is the Minister for Labour, and a key Labour Party figure in keeping Ehud Olmert's coalition Government together.

He believes Australia's diplomatic and political support for Israel has been important, and he hails Australia as "highly respected, a very important state in world politics because of its worldwide involvement. It's also a donor country to the peace process."

As chairman of the Australia-Israeli parliamentary friendship association, Herzog hosted Kevin Rudd on both his visits to Israel.

"I took him (Rudd) to a Tel Aviv pub.

"He was very impressive. He knew the (Middle East) situation intimately.

"We also had a high regard for Mr Howard and Mr Downer."

I meet Herzog for an after-dinner coffee in a cafe near his home in an upmarket suburb of Tel Aviv.

The cafe is called, appropriately, Matilda's and, despite the relatively advanced hour, is full of families with kids and other families with dogs. Herzog is a friendly, easygoing guy, but he is part of Israeli political royalty.

His father, Chaim Herzog, was president of Israel.

An uncle, Abba Eban, was a legendary foreign minister.

The Israeli Labour Party has an institutional bias towards a peace deal with the Palestinians.

It is always the party of the peace process.

Herzog outlines Labour's view of the shape of a likely peace deal with the Palestinians.

He believes this view will ultimately gain acceptance from both parties to the dispute.

Labour's vision involves Israel retreating mostly to its 1967 borders, but retaining the main Jewish settlement blocks around Jerusalem plus one other big Jewish settlement.

The Palestinians would have a contiguous state on the West Bank and would also have the Gaza Strip.

The Jewish settlements Labour believes Israel should retain account for about 4 per cent of the disputed land and Israel would compensate a Palestinian state with an equivalent land transfer from Israel proper.

There would be special arrangements for Jerusalem, which would presumably function as the capital of both states.

There would be a right of return for Palestinian refugees and their descendants to the Palestinian state but not to Israel.

But Herzog, who is no hawk in Israeli terms, is nonetheless conscious of the obstacles to such an agreement.

"There are some prerequisites," he says.

"There must be security.

"The Palestinians must build up their institutions, especially their security institutions.

"Israelis demand security.

"The Palestinians are much weaker than they were in 2000.

"Hamas must be countered. They must return our (kidnapped) soldiers, they must stop the rocket attacks.

"In 2000, we had a Palestinian partner (Yasser Arafat) who was capable, but not willing.

"Now we have a partner (the Palestinian Authority led by President Mahmoud Abbas) who is honourable and willing, but it is not clear if it's capable."

Herzog says the withdrawal of Israeli settlements - and of a military presence - from Gaza in 2005 was not a mistake.

But he is, he says, "bitterly disappointed" with the way Gaza has turned out, with the terrorist group Hamas in control and daily rocket attacks on Israel from Gaza.

"We want to be optimistic, but we are sober," Herzog says.

Many Israelis express similar sentiments.

They would make big territorial and other concessions for peace, but they are bitterly disappointed with the results in the Gaza Strip and in southern Lebanon.

It may well be that the impasse, and the conflict it leaves unresolved, will continue for many years yet.