Benjamin Netanyahu has what kindly observers might describe as a credibility problem. Travelling in Europe this week, the Israeli prime minister said he was straining every sinew to restart peace talks with the Palestinians. His interlocutors were unconvinced. Mr Netanyahu looks too much like a politician running in the cause of standing still.

He is not helped by the company he keeps. Avigdor Lieberman, the ultra-conservative foreign minister in Israel’s Likud-led government, poured scorn on the diplomatic mission even before Mr Netanyahu had left Israel. Recalling the procession of failed initiatives since the Oslo accords, Mr Lieberman ventured that the next 16 years offered scarcely better prospects. Talk in Washington of a two-year march to an Israeli-Arab settlement was whistling in the wind.

Earlier in the summer Nicolas Sarkozy, France’s president, advised Mr Netanyahu he would do better to choose another foreign minister. The Israeli prime minister replied gamely that his colleague was more agreeable in private than his public persona might suggest. That may be so. What is certain is that Mr Lieberman’s implacable hostility to Palestinian statehood spans the public and the private.

US president Barack Obama’s drive for a Middle East settlement has thus far seen Mr Netanyahu cast as an obstacle to peace – an uncomfortable role even for a Likud prime minister. So his purpose this week was to strike a more emollient pose. Israel had taken significant steps to break the deadlock, he assured Britain’s Gordon Brown and Germany’s Angela Merkel.

By lifting some security restrictions – roadblocks and such like – Israel was nurturing economic progress in the occupied West Bank. A measurable improvement in the everyday lives of Palestinians had been matched on the strategic plane by Mr Netanyahu’s own acceptance of the eventual goal of two states.

These steps, he averred, must now draw an equally “courageous” response from the Palestinians if negotiations were to be re-energised. The time had come for Mahmoud Abbas’s Palestinian Authority to signal acceptance that Israel will forever be a Jewish state.

There are one or two problems here. The loosening up in the West Bank is welcome. A Palestinian state needs strong economic foundations, and rising incomes in the West Bank will strengthen Mr Abbas’s position vis-à-vis Hamas in Gaza. It is a stretch, though, to see this as marking serious “concessions” on Mr Netanyahu’s part. Likewise, his belated willingness to imagine the possibility of two states – he was heard this week to utter the “P” word, “Palestine” – represents a personal epiphany. For everyone else, he is simply catching up.

Then there is the question of tone. Many – not all – of the things that Mr Netanyahu asks of the Palestinians would necessarily form part of a settlement. No Israeli government would sign an accord that did not safeguard the Jewish character of its state; and a Palestinian state would indeed have to accept constraints on its military.

That said, the rigour with which Mr Netanyahu appends the description “demilitarised” to each and any reference to a Palestinian state seems calculated to make life harder for Mr Abbas. The inference is that the Palestinians must accept Israel’s red lines and core demands even before the start of negotiations. By contrast, Israel’s annexation of Arab east Jerusalem is deemed non-negotiable.

An effort to tie progress in Palestine to international efforts to confront Iran’s nuclear ambitions raises similar doubts about motives. Mr Obama successfully up-ended Mr Netanyahu’s initial “Iran-first” approach. The threat from Tehran, the US president insisted, was a reason to advance, rather than to stall, Israeli-Palestinian negotiations.

Outplayed during that first skirmish in Washington, the Israeli prime minister now suggests that the two strands – talks about Palestinian statehood and tightening international pressure on Iran – must run in parallel. But that surely would be to hand Iran’s ayatollahs a veto over Middle East peace.

Mr Obama is probing the Israeli government’s motives. The US demand that Israel halt the expansion of Jewish settlements in the West Bank has become a litmus test of Mr Netanyahu’s intent.

Thus far the US administration has played hardball – insisting on a complete halt to settlement expansion. This is the minimum requirement of Palestinians and Arab governments for reciprocal confidence-building measures. Mr Netanyahu’s response has been to wriggle: in countless sessions with George Mitchell, Mr Obama’s Middle East envoy, the Israelis have sought exceptions and exemptions.

When Mr Netanyahu met Mr Mitchell again in London this week, Israeli diplomats were hinting that the argument was going their way. East Jerusalem would be exempted from the freeze, as would some projects in the West Bank. Whether this gloss represents a real dilution of US demands or an effort to save face we shall see soon enough.

There is much at stake here for Mr Obama. He cannot afford to blink in the face of Mr Netanyahu’s intransigence. The president has placed a revival of the peace process at the heart of a strategic effort to rebuild US influence in the region and across the Muslim world. He has promised a comprehensive approach to Israeli-Arab reconciliation. Above all, he has pledged fairness.

Holding Mr Netanyahu to a settlement freeze has thus become a critical measure of US resolve and presidential prestige as well as of Israeli intent. The war in Iraq cost the US its leadership role in the Middle East. Even-handed peace-making is the only route by which Mr Obama can restore it.

This is not to say that even a gracious retreat by Mr Netanyahu on the settlements issue would be a sufficient foundation for a peace settlement. Far from it. If Mr Obama succeeds in his ambition of producing by next month a framework for comprehensive negotiations, it will contain as many challenges for the divided Palestinians and for Arab leaders as there are for Israelis.

The irony is that Mr Netanyahu’s intransigence has left the tough questions for the Arab world largely unasked. It will need more than a more emollient tone to change that. Mr Netanyahu has yet to show that he is running with purpose.