The open disagreement and tough words exchanged in public by the United States and Israel a few weeks ago on Washington’s demand that Israel freeze all new settlements in occupied Arab East Jerusalem has now entered Phase Two. Now, both sides are working quietly behind the scenes to harness their political resources, gauge the other side’s intentions, and prepare to continue the battle.

The consensus of people I have spoken to within the United States, representing all sides of the issue, seems to see this as a serious clash of positions and perceptions with very little precedent. However, we cannot gauge its full significance until three things happen.

These three things are the full Israeli response to the American demand to freeze all settlement construction; the Palestinian and Arab response to the situation and what both Palestinians and Arabs might do under various alternative scenarios; and the American response to both the Israeli and Arab positions. We are in the early stages of a drama whose consequences may be more in the realm of political theater than historic policy shifts.

The depressing common denominator on all three fronts is that domestic conditions are totally inauspicious for any resumption of serious negotiations. The right-wing Israeli government remains firmly committed to expanding its settlements in Jerusalem and other areas. The Palestinians remain deeply divided between Hamas and Fatah. The United States remains ambiguous and even confused between its role as the ironclad guarantor of Israeli security and military superiority over all its neighbors, on the one hand, and the would-be impartial mediator that seeks to nudge Israelis and Palestinians into a serious peace negotiation, on the other.

The most interesting and dynamic arena for the moment is the domestic American political front, where the traditional heavily pro-Israeli position of a majority of politicians has been shaped by three intriguing developments.

These are the top-level, public, and repeated criticisms of Israeli settlement policy by the Obama administration; the continued expansion of the impact of J-Street and other more centrist pro-Israel lobby groups that now provide an alternative to the hard-line positions of the much older and stronger American Israel Public Affairs Committee (AIPAC); and, a refreshing and rare public debate about whether the impact of pro-Israeli groups like AIPAC on the pro-Israeli policy of the United States should give way to a more even-handed approach that would better serve American national interests in the wider Middle East.

These issues are widely and often intensely debated in private these days, but will soon re-emerge onto the public stage. Several dynamics are pushing all sides to shed their ambiguous positions and clarify what they seek and what they will fight for politically.

Potentially, the most significant driver of events these days is the American initiative to start the proximity talks between Israelis and Palestinians.

The Obama administration anticipates that if it can relaunch the talks, it would be in a position to use its mediation role to push both sides to define their bottom-line positions, and start making “confidence-building gestures” that could shift the momentum in the region from one of violent confrontation to diplomatic accommodation.

This is an ambitious agenda that also appears slightly fanciful to most knowledgeable people on the Middle East that I have spoken to in recent weeks in the US and the Middle East.

It is fanciful because it repeats the approach that the United States used in the past two decades without success, while conditions on the ground have changed radically, notably within Israel and Palestine.

That is why the critical element that still remains unclear is the American position on what constitutes a fair peace deal. If Washington does not clarify what it sees as a fair and realistic peace deal between Israelis and Palestinians, all parties will continue to deal with the default American position that prevails now – which is a heavy tilt toward Israel on the ground, combined with some rhetorical criticism of Israeli policies that fails to transcend the realm of rhetoric.

Washington can criticize Israeli settlements for months and years, but if it does not put bite into its position – by threatening to withhold financial guarantees or trade incentives, say – the mediating role of the United States will remain largely docile, symbolic, and ineffective. If the Arab world, for its part, does nothing beyond issue statements and hollow threats to suspend the 2002 Arab peace plan offer, there will be no incentive for either the US or Israel to change their positions.

It is not realistic to expect Washington alone to pressure Israel to change its policies. Either the United States, Israel and the Arabs must all move together diplomatically, or they will remain mired as they are now in a deep stalemate that is enlivened by occasional arm-waving drama but no real change in substance.