The White House publicly welcomed Israeli Prime Minister Benjamin Netanyahu's speech yesterday giving qualified support to a two-state solution with the Palestinians. Nonetheless, there remains a gap between Mr. Netanyahu and the Obama administration over the expansion of settlements. Fortunately, there is a way to bridge that gap.

The issue of settlements highlights broad philosophical differences about how to approach Arab-Israeli peace. Neoconservatives such as Norman Podhoretz have favored a hands-off approach. In contrast, foreign-policy "realists," including Zbigniew Brzezinski and Brent Scowcroft, favor imposing a peace plan.

The problem with the neoconservative approach is that it assumes the status quo can be sustained. The problem with the realist approach is that it assumes the status quo can be instantly transformed. Neither approach can be applied to a complex reality on the ground.

It is foolish to believe that Israel can continue to build settlements for decades without considering the impact that has on the lives of the Palestinians. It is also implausible that successive Israeli governments will view the settler population as mere bargaining chips in a final peace agreement. One cannot disregard the needs of either the Palestinians or of the Israelis.

Israel has been unable to freeze settlement construction since the enterprise began in 1968, and it is hard to see how it could do so now. How would the government justify the new policy to its voters?

The only way to deal with the settlement issue is to render it moot by widening it to peacemaking and heading straight into the final negotiations on territory.

Those negotiations are hung up on four issues: the rights of refugees, control of Jerusalem, security and settlements. The first two are impossible to solve when neither side has much trust in the other. The third has become more complex since Israel withdrew from the Gaza Strip in 2005 and was subsequently barraged with over 3,000 rockets. Ironically, then, the issue with the narrowest gap between Israelis and Palestinians is land.

Last year, Israeli Prime Minister Ehud Olmert and Palestinian President Mahmoud Abbas discussed the possibility of a land swap between the Palestinian territories and Israel. Mr. Olmert suggested retaining 6.5% of the West Bank in return for equivalent land inside Israel. Mr. Abbas thought the figure should be approximately 2%. The difference is bridgeable. For example, three quarters of all Israeli settlers live in less than 4.5% of the West Bank, largely adjacent to the pre-1967 boundaries. This land could be swapped for an equal amount of land inside Israel.

There are three distinct advantages to focusing the negotiations on territory now. First, it allows the Palestinian Authority to tell its people that it has obtained the equivalent of 100% of the land to be part of a contiguous Palestinian state. As such, negotiations and not Hamas terrorism will be vindicated. Second, Israelis will have something to gain and not just give. Until now, no Israeli leader has succeeded in legally annexing a single settler, let alone a large majority of them. So give a large majority of the settlers who live in the major blocs a stake in being part of the solution rather than part of the problem. They would have their legal status normalized as part of Israel. Settlements and security would be decoupled. The Israeli army would not leave until the Palestinian security services demonstrated an ability to root out terror. Finally, after many decades, the settlements issue would no longer be a thorn in U.S.-Israel relations.

This approach alone will not guarantee successful resolution of the Jerusalem and refugee issues. Yet after success on land they will have to be addressed. Over time, Israel will need to make concessions in Jerusalem, and the Palestinians will need to concede that refugees can only return to the Palestinian state and not to Israel.

Stalemate is never a durable strategy, but a proactive approach could shatter old myths and create a better and more permanent reality for both sides.