Dinner at the home of a foreign diplomat, earlier this week. Two high-ranking visitors from the diplomat's home country listen as an Israeli delegation paints a less than encouraging picture of the Middle East. The Israelis - academics, journalists and a former negotiator in the peace process, all of them somewhere between the center and the left on the political map - are united in their prognosis: Things aren't what they were.

Benjamin Netanyahu, the prime minister, is incapable of any serious diplomatic action. Ordinary Israelis aren't worried enough about security to take much of an interest in politics, mistrust Arabs in general and have no particularly desire for a breakthrough. The chance of peace, either with the Syrians or the Palestinians, is near zero. The Obama administration would be well advised to stake neither its efforts nor its reputation on Middle East peace.

Their assessment completes a grim picture sketched by Thomas Friedman in his column in the New York Times last month. Once Israelis saw peace with their neighbors as a matter of life or death, Friedman argued, while for America it was just hobby. Now the situation has reversed. Israelis have completely lost faith in Palestinian sincerity in the wake of a wave of murderous attacks that followed the outbreak of the second intifada. They have since built a fence to cut themselves off from the threat - with the consequence that what goes on in the West Bank is as interesting and relevant to them as the dark side of the moon.

Israelis living within the Green Line once again feel safe; and, thankfully, Israel troops are rarely killed (in the past few years Canada has lost more soldiers in Afghanistan than Israel in the Palestinian territories). The economy has weathered the global crisis remarkably well, hi-tech industry is flourishing. So why worry?

Add to this assessment several other factors, all of which make a settlement even more unlikely: The lesson most Israelis draw from the retreat from Gaza and Lebanon is that evacuating occupied territory just brings more rockets; Likud party ideology barely allows the government to push through even limited outpost evacuations - let alone a full-scale withdrawal; and changes in the army's demography (almost a quarter of officers in combat units are now religious Jews) will make it hard to rely on the IDF next time the government decides to evict Jews from their homes.

On the Palestinian side, there is a lack of both political maturity and will to compromise, exacerbated by faith in the unflinching support of the Obama administration. Nor do the Geneva Initiative's warnings of a 'demographic time bomb' hold much sway over Israel, which is happy enough for the Palestinian population to explode - provided it does so beyond the confines of the separation fence. As for the radicalization of Arab Israelis, this will always be a problem, peace settlement or no.

The skeptics have a point. There is a lot to be claimed against Western advocates of a peace deal. Who said every conflict has a solution? And why is the West so naive when it comes to Arab intentions? How can they be so presumptuous as to think that the United States can dictate peace from above?

And yet there is one question to which Israelis, whether pessimistic or pragmatic, have no answer: How can Israel redress the decline in its legitimacy? Ariel Sharon was so concerned by Israel's failing image that he devised the withdrawal from Gaza. But five years have passed since then. At issue is not just the dwindling international support for Israel but the state's ties with the Jewish Diaspora. Will the next generation of American Jews stand beside Israel with the same determination, when in the West the occupation is increasingly associated with apartheid?

While the Israelis at the dinner had no doubt of the perils of the current situation, they were also resigned to it. But as I listened to them, I could not help dwelling on the consequences of political stagnation - and all the nasty things that flourish in stagnant water. Will Netanyahu, like the Red Queen in Alice in Wonderland, have to keep running just to stay in the same place?

Somehow - and I know the analogy is imperfect - events of the past year are reminiscent of the prelude to the Yom Kippur war. Conversations with senior army officers reveal similar fears. The Middle East is in for a long, difficult summer. We can only hope the pessimists are wrong.