On two key issues of Barack Obama's foreign policy - Palestinian statehood and reconciliation with Iran - Benjamin Netanyahu, Israel's Prime Minister, has chosen to fight the American President. He has refused to bend to Obama's will, and is instead seeking to outwit and defeat him.

Thus, to save his right-wing coalition - and his own job - Netanyahu has not hesitated to offend Obama and even put at risk Israel's vital relationship with the United States. The fact that he has done so suggests that he thinks he can win the present battle of wills. Indeed, Netanyahu may already have won the first round.

The evidence is fragmentary, but seems to be there nevertheless. If a State Department spokesman is to be believed, the US is softening somewhat its demand for a total Israeli freeze on colonies before Israeli-Palestinian negotiations can begin. Washington also seems to have embraced Israeli demands for tougher sanctions against Iran, if it refuses to halt uranium enrichment by a September deadline. Obama had early mentioned September as a tentative date when the situation would have to be reassessed.

These apparent concessions to Israeli remands may be only tactical. In squeezing Netanyahu, Obama has proceeded with great caution. The American president has not yet revealed his own battle plan. It is as if he has wanted the Israelis to reach certain conclusions by themselves, rather than be pushed.

To Netanyahu's way of thinking, however, it is Obama who is beleaguered - not himself. After all, from Netanyahu's standpoint, Obama has committed the cardinal sin of daring to equate Israeli and Palestinian interests, and of reaching out a hand of friendship to Iran, a country Israel has long identified as a dangerous rival. Netanyahu wants Iran struck down, much as Israel and its friends pressed the US to strike down Saddam Hussain's Iraq for seeming to pose a long-term strategic threat to the Jewish state.

It is now clear that Netanyahu has no intention whatsoever of ending the occupation and colonisation of the West Bank, or of conceding Palestinian statehood in any meaningful sense. Regarding Iran, he has spared no effort to press the international community to punish Iran with 'paralysing sanctions', while hinting that Israel would itself strike Iran, with or without America's green light, if Tehran did not put an end to its nuclear programme.

These are arrogant and short-sighted positions. They point to a lack of fresh security thinking in Israel. It is as if Netanyahu and his civilian and military colleagues were blind to the evolution of international (including American) opinion regarding Israel, and to the looming changes in Israel's strategic environment.

Indeed, it is as if Israeli leaders remained persuaded that harsh and brutal methods - the continued seizure and colonisation of Palestinian land, the repeated assaults on Israel's neighbours, the political assassination of Arab opponents - would continue to work in the future as they have done in the past. In other words, that Israel would always be able to dominate the entire region militarily, and would therefore have no need to make concessions.

Netanyahu was in Europe recently. After meeting Britain's Gordon Brown and Germany's Angela Merkel, he declared that no freeze on building colonies had been agreed; and that he would certainly not accept a freeze in East Occupied Jerusalem, where building has, in fact, been accelerated. Meanwhile Foreign Minister Avigdor Lieberman has warned Palestinian Prime Minister Salam Fayad that Israel would not tolerate him declaring a de facto Palestinian state by 2011, if negotiations had not progressed by then.

Netanyahu may indeed have boxed himself into a corner, lulled by the fact that Obama has not yet published his peace plan. There is talk of a tripartite meeting between Obama, Netanyahu and Mahmoud Abbas, president of the Palestinian National Authority, in New York at the end of September.

This may be when Netanyahu could face some real heat. To outside observers, Obama has not retreated an inch from the position he outlined in Cairo on June 4. "Israelis must acknowledge," he then declared, "that just as Israel's right to exist cannot be denied, neither can Palestine's. The United States does not accept the legitimacy of continued Israeli colonies. This construction violates previous agreements and undermines efforts to achieve peace. It is time for these [colonies] to stop."

Obama might have added that Israel's land grab must not only be stopped, but put into reverse. For the conflict to be resolved, colonies will have to be evacuated; borders defined; Occupied Jerusalem shared; and a solution agreed for the refugees. To focus on Israel's security alone, as Netanyahu evidently prefers, would be to elude and fudge other key problems which will need to be addressed.

However difficult it may seem, the time for a settlement of the Arab-Israeli conflict has arrived. Obama is the one world leader - indeed the only one in our lifetime - who has a chance of pulling it off.

Netanyahu may have won an early round against Obama, but he has by no means won the war. We have seen only skirmishes so far. The real battle is yet to come.