As a new American president prepares to take office, and as Israel prepares for national elections, the government of Israel has announced a "compromise" on the illegal West Bank outpost of Migron. The deal makes a mockery of government pledges to deal seriously with illegal settler activity. It also challenges the seriousness of Israel's commitment to achieving peace with the Palestinians. Understanding why requires a closer examination of the details hidden behind the announcement.

Here are the facts: In December 2006, the Israeli government admitted that Migron, the flagship of the outpost movement, was illegal - its residents little more than thieves squatting on Palestinian private property - and should be evacuated. After delaying action, to try to placate the settler law-breakers, the government has now arrived at a deal with settler leaders: the eventual relocation of Migron to a site that is part of the municipal area of the West Bank settlement of Adam.

This compromise reduces what should be a demonstration of Israel's seriousness about stopping illegal settler actions to nothing more than a mechanism for legalizing such actions. More ominously, it allows for a dangerous Israeli government precedent: expansion of a settlement located east of the security barrier and its eventual annexation to Jerusalem, something that would have grave consequences for the viability of the Israeli-Palestinian two-state solution.

Here's why: Adam is an isolated settlement of around 2,500 residents, located far northeast of Jerusalem. Its built-up area is about four miles from the Green Line and about one mile from the municipal boundary of Jerusalem. But these numbers are not the whole story. Near Adam, the security barrier dips deep into the West Bank, leaving Adam on the West Bank side while effectively annexing nearly all the open land west of it - around 450 acres - to Israel.

Critics warned that the only justification for this gerrymandering was political: to clear the way for settlement construction that would link Adam to Jerusalem, while blocking any Palestinian development in the area.

And sure enough, in March 2007, Plan 240/3 surfaced, under which Adam would be massively expanded onto the annexed land. The planned construction would accommodate more than 1,000 new units, intended to house more than 5,000 settlers. It would leave Adam straddling the barrier, and create a contiguous block of Jewish settlement stretching west from Adam to the large Jerusalem settlement of Neve Ya'akov, located more than four miles away. With this accomplished, the re-routing of the security barrier to take in the rest of Adam would be a virtual fait accompli.

Plan 240/3 (which remains in the pipeline, pending completion of the government approval process) and the Migron deal discredit the popular wisdom - often invoked by Israeli officials - that "of course settlements located beyond the barrier will someday be removed." They also reveal highly problematic intentions regarding northern Jerusalem: to link settlements on the barrier's Jerusalem side to isolated settlements on its West Bank side, effectively annexing these settlements and surrounding lands to Jerusalem.

This directly imperils the two-state solution. Under current realities, incorporating Jewish settlements that are within the municipal boundaries of Jerusalem into Israel is still compatible with a solution for Jerusalem along the lines of the Clinton parameters, and the informal understandings reached at Taba and in the Geneva Initiative. Expansion of these settlements, and particularly linking them to settlements located outside the barrier, threatens the viability of such a solution. Simply stated, contiguous Israeli settlement on Jerusalem's periphery - disrupting the natural contiguity between Palestinian areas of Jerusalem and the city's West Bank hinterland - is incompatible with any possible peace agreement.

The core of the issue: Migron is illegal, by any standards. Under Israeli law, it should be eliminated - not relocated to another site in the West Bank, and certainly not to Adam, where it would become a new obstacle to the two-state solution. Relocating Migron would only reward settlers' illegal acts and encourage further law-breaking. Migron's residents are law-breakers, and any inconvenience their eviction causes them is of their own making.

It's bad enough that Israel has long turned a blind eye to the so-called outposts and other settler transgressions. It is far worse to make a pretense of taking a stand on outposts, while in reality laundering the settlers' sins and transforming them into tools of a more grandiose, dangerous settlement scheme.

It's time for Israel to stop aiding and abetting the settlers in their efforts to destroy any chance for a viable peace agreement. The Israeli High Court, the Israeli public and the international community should reject this deal on Migron and the subterfuge it represents.