The international furore over the assassination of Mahmoud al-Mabhouh in Dubai has obscured a political event in Israel that might have otherwise made more headlines.

Last week, the country's deputy foreign minister, Danny Ayalon, decided not to meet a group of US Congressmen because their delegation included representatives of the fledgling "pro-Israel, pro-peace group" J Street. The group's respectability was underlined at its first convention last year by the presence as a keynote speaker of James Jones, President Obama's National Security Adviser, but its main misdemeanour appears to be that it does not believe that friendship with Israel entails fulsome agreement with every policy of the Israeli government of the day.

You can argue over whether extrajudicial executions on foreign soil facilitated by the use of European identities stolen from private citizens is – always assuming that Mossad was indeed responsible – the best way for a country facing international criticism to improve its image abroad. But boycotting legislators from your No 1 ally because they might have some questions about your foreign policy seems just self-destructive.

In December, Benjamin Netanyahu identified the need to combat the "Goldstone effect" as a foreign policy priority. In particular he charged that Judge Richard Goldstone's report on war crimes during the 2008-9 military offensive in Gaza was being used to "delegitimise" Israel's right to self defence. "We must delegitimise the delegitimisers," the Prime Minister has been quoted as saying. And in doing so he unleashed a wave of debate, which reached its zenith at the annual Herzliya conference this month, over how Israel could better conduct "hasbara" – literally "explaining" – to make its case abroad.

The familiar belief that the country's image is merely a matter of "hasbara" is all too easy to deride. The problem, it suggests, has nothing to do with what did or didn't happen in Gaza, only how good Israel is at conducting its public diplomacy. But it also misunderstands the larger context of the international criticism now faced by the Netanyahu government – one which may help to explain the unexpectedly rough ride Israel has had in Europe over the Dubai assassination as well as the absence of total support (at least from the British and French governments) over Goldstone.

In relation to Gaza, of course Israel would be in a stronger position to argue that it had nothing against Gaza's civilian population as a whole if it were to lift the commercial blockade on the territory, as most European governments believe, however tacitly, it should. And it's hard, to take just one other example, to see how Israel's security is enhanced by the fact that the UN can't build the scores of new schools it desperately needs and has the funds for, simply because it isn't allowed to import cement, which it is confident it can prevent falling into the hands of Hamas.

But there is another, largely unspoken, dimension to the fears about "delegitimisation" – a measure (and this shouldn't be exaggerated) of international impatience with the occupation and the fact that Israel after more than four decades still has no agreed borders. No less a figure than Dov Weissglass, who was the closest confidant and lieutenant to Ariel Sharon when he was Prime Minister, asserted after the UN human rights meeting last October that the climate was now different "in an extreme degree" from the one in which Israel had seen off complaints about alleged war crimes in the past.

In an article in Yedhiot Ahronot, Weissglass argued that only a few years ago the Palestinian Authority's wish for a state was a subject of "scorn" (and he should know since he was one of those scorning it). But it was now a "level-headed and moderate political entity", seen as a "fit and worthy party to a political arrangement".

He pointed out that the world sees Hamas's control of Gaza not as an obstacle to a diplomatic process but as "an incentive for accelerating it" since a PA-Israel deal might well weaken Hamas. In Weissglass' eyes, "the relationship between [Israel's] position on the conflict and its diplomatic standing around the world is absolute, direct and immediate" and "the [international] confidence in the seriousness of the Israeli government to achieve a political arrangement with the Palestinians is dwindling".

This is suddenly about to become relevant again. Having seen off President Obama's demand for a total settlement freeze, Netanyahu has been able to present himself as the one ready for talks without preconditions and Palestinian President Mahmoud Abbas as the one dragging his feet. But Abbas is almost certainly about to agree to "proximity" talks with the President's envoy George Mitchell shuttling between the two sides. Which will put Netanyahu's good faith to the test.

Pessimism about such diplomacy bringing an end to the conflict is now endemic. For a successful outcome Netanyahu would have to experience a near-miraculous conversion to a one to one deal on borders, the surrender of Area C, the vast tract of the West Bank controlled by Israel, the division of Jerusalem, and at least a formula on refugees of the sort discussed at Camp David in 2000 or with Ehud Olmert in the dying days of his premiership. And what will Washington do if he is not so converted?

Here, amid the bleak realities of the occupation's infrastructure and ever increasing Jewish settlement in the West Bank and East Jerusalem, there appears only one watery ray of hope, the plan of Prime Minister Salam Fayyad to have a Palestinian state ready by 2011.

In an interesting interview with yesterday's Journal du Dimanche the French foreign minister Bernard Kouchner said he could "envision" recognition of such a state even if no agreement had been reached on its borders with Israel. Fayyad's plan would not end the occupation, of course. But were the UN Security Council to recognise a Palestinian state broadly on 1967 borders it would change the tectonic plates of the conflict. Israel would be left occupying a state which had the full panoply of legal and diplomatic rights.

Israel was quick to dismiss the idea yesterday, and is no doubt confident that the US would veto the idea. Past experience suggests that it is right. But what exactly would be the case for a veto? Gaza would be a serious problem but would Hamas risk opposing a Palestinian referendum and take the blame for sabotaging the one hope for a state? Israel itself has had for 43 years all the apparatus of international recognition without internationally agreed borders. Is it so inconceivable that a future Palestine should be afforded a parallel status?

No one can sensibly say this is a likely outcome. Yet the irony is that imposition of a solution, which a Security Council decision would be close to being, would actually be of equal benefit to both sides. The Palestinians would finally be within sight of realising their aspirations for a state. And Israel would finally be within sight of the entrenched and unbreakable legitimacy that only agreed and internationally ratified borders can, in the end, guarantee it.