The United Nations conference commemorating the 60th anniversary of UNRWA (the UN Relief and Works Agency for Palestine Refugees) could not come at a better moment. The restitution of lands occupied in 1967 will obviously continue to be indispensable to resolving the Israeli-Palestinian conflict, but it is the legacy of the 1948 war that both parties to the conflict have now put at the centre of the debate.

Oddly, it was Israeli Prime Minister Benjamin Netanyahu who, by requesting that the Palestinians recognise Israel as a Jewish state, reopened the 1948 file. That demand brought the quest for peace back to its fundamentals, where the question of the refugees is bound to play a central role.

Netanyahu’s intention was essentially to force the Palestinians into admitting that the right of return of refugees applies only to the Palestinian state, not Israel. But the true significance of his demand lies in that it’s being pronounced at a time when Prime Minister Salam Fayyad’s policies are posing a genuine challenge to the Palestinian national movement to choose between an ethos of vindication and one of state building.

Under Fayyad, the Palestinian Authority seems to be superseding the Palestinian national movement’s diaspora-based emphasis in favour of state building within the territorial confines of the occupied territories. It is as if the voice of the diaspora were being silenced in Palestine. Conspicuously, the recently elected PLO Executive Committee - which in the past consisted exclusively of representatives of the Palestinian diaspora - now has only one member from the diaspora, a delegate from Lebanon. This could mark a sea change in the evolution of Palestinian nationalism.

In Zionism, the Jewish community in Palestine was the focus of decision making, with the Jewish diaspora a strategic backup. But the situation was reversed in the case of the Palestinians: the ethos of the diaspora, with the plight of the refugees at its centre, has been the beating heart of the Palestinian cause and the focus of decision making for the national movement.

As a result, the Palestinian community in the occupied territories was always subservient to the primacy of the Palestinian diaspora. When it sought to assume a leading role - during the first Intifada in 1987, for example, its effort was suppressed by the diaspora-based PLO.

Fayyadism, by contrast, seeks the “Zionisation” of the Palestinian national movement. It imbues the Palestinian cause with a positive ethos of nation and state building by superseding Palestinian nationalism’s diaspora-centred preoccupations - and thereby transcending the paralysing obsession with a never-fulfilled vindication of rights and justice.

In the peace process as it has been conducted up to now, the Israelis always wanted to concentrate on the issues of 1967 - that is, land and security. The Palestinians, however, always wanted to return to the issues of 1948: refugees, dispersion and what Akram Hanya, a close Arafat confidant, defined as the need “to make the Israelis face the tribunal of history”.

It looks as if now the roles have been inversed. Precisely when Israel managed to domesticate the Palestinian national movement by forcing it to abandon its revolutionary path in favour of state-building and economic development - a reorientation undertaken by Zionism as well - the Israelis decided to draw the Palestinians back to the fundamentals of the conflict.

Indeed, despite of the rise of Fayyadism, the Palestinian national movement will be careful not to betray its real sources of legitimacy: the ethos of dispossession and the refugee. The decisions taken at the last Fateh convention were explicit in calling for the refugees to “return to their homes and cities”.

The Palestinians are attempting to hold the stick at both ends, claiming before the world their endorsement of the two-state solution while calling for the right of return at the same time. Any sober Palestinian leadership must know by now that the rhetorical promise of a return to an abandoned house and to the olive tree is an irresponsible mirage that fundamentally contradicts the rationale for a separate Palestinian state.

Peace is frequently not about justice but about stability. The Palestinians must align their national conversation with what is realisable, while Israel must resolve its own contradictions and address the refugee problem in a way that secures the legitimacy and durability of a future peace agreement with the Palestinians. Because Israel will have to implement practical measures of resettlement and compensation that will not be based on an automatic right of physical return, a symbol of genuine moral compensation is also called for.

Instead of suppressing the memory of the refugees, Israel needs to recognise that in 1948 the land was bisected by the sword, and that the Jewish state came into being partly because of the massive uprooting and dispossession of Palestinian communities. Israel should develop enough confidence in its solidity as a nation to integrate into its schools’ curriculum the tragedy of the Palestinian Nakba. The resolution of conflicts of this nature requires the recovery of historical memory and a proper hearing of the two parties’ historical narratives, perhaps through the creation of Truth and Reconciliation Committees.

Israel’s consolation would be that the Palestinians, too, will have to come to terms with their share of responsibility for the calamities that have befallen them. Only an acceptable deal on the refugees can definitely close the 1948 file - and only then can the conflict in Palestine end.