The announcement of upcoming "proximity talks" between Israel and the Palestinians raises a number of questions - what exactly will they talk about? What else can be renewed in the peace process, where everything seems to have been tried while peace remains elusive? What trick does George Mitchell, the mediator of the hour, have up his sleeve that was kept from his frustrated predecessors?

Israel wants to extract itself from the morass of control over the Palestinians, who accuse it of apartheid and force it to choose between its Jewish identity and its democracy. But Israel also wants to keep most of the West Bank, the settlements and security control, and to enjoy exclusive rights over Jerusalem.

Israel's answer to this stagnation calls for upgrading the Palestinian Authority of Mahmoud Abbas and Salam Fayyad to a body responsible for a polity within provisional borders. This dwarf state would be created by a special UN vote, effectively absolving Israel of responsibility. The dispute over the remaining territories, refugees and Jerusalem would be settled later in talks between two sovereign states, Israel and Palestine, not between an occupier and its subjects.

The Palestinians want as much of their historical homeland as possible, to be rid of Israeli soldiers and settlers, and to maintain international support. The Palestinians are calling for the creation of a state within the 1967 borders, with small land swaps that would leave the large settlements on the Israeli side, Jerusalem divided as the capital of two states, and the return of an undetermined number of refugees to Israel. They fear that unless they receive the maximum now and instead settle for a mini-state, the world will lose interest in them just as it ultimately came to terms with Israeli control over the Golan Heights.

Leaders on both sides must prove they have not given up, that it was the other side that reneged. Both Prime Minister Benjamin Netanyahu and Abbas see negotiations as a zero-sum game rather than a give-and-take in which both sides benefit from a redistribution of resources.

Abbas opposes an interim arrangement, and Netanyahu is unwilling to sign on to a final-status deal. Each has adopted a strategy of attrition, locking into his position and battering the other with accusations in an attempt to win over the American mediator. The Palestinians are hoping Barack Obama will blame Netanyahu for the diplomatic stagnation and force Israel into a favorable final-status agreement. Israel expects that the U.S. president, hungry for foreign-policy achievements but restricted by Netanyahu's supporters in Congress, will settle for an interim agreement and impose it on the Palestinians, just as he retreated from his demands for a complete settlement freeze and a halt to Israeli construction in East Jerusalem.

Can the sides be bridged? A year ago the Reut Institute recommended that Washington present a vision for a final-status agreement to give the Palestinians a "diplomatic horizon," after which a Palestinian state would arise within provisional borders. President Shimon Peres has presented a similar initiative, calling for separate talks on an interim arrangement and a final-status agreement respectively.

After a year of fruitless wrangling over a settlement evacuation, a provisional Palestinian state seems like the most practicable arrangement, either through mutual agreement or a unilateral Israeli decision. It is, of course, subject to political limitations, but Israel could settle for a limited evacuation of settlements and outposts, retain security control and not even negotiate over Jerusalem for now. Meanwhile, the Palestinians are not being ordered to offer anything in return - not to recognize Israel as a Jewish state or relinquish the right of return, both of which Netanyahu is demanding as conditions for a final-status agreement. But here, too, lie the initiative's weak points. Disputes over the most sensitive issues will remain, ever threatening to bubble over, and Israel will be drawn into internal clashes over settlers - all without an actual solution to the wider conflict.

Netanyahu believes that the only answer to the current diplomatic stagnation is an interim agreement based on a Palestinian state within provisional borders, but he is hesitant to openly state his support for the idea. He would rather reach that result for lack of an alternative, under heavy U.S. pressure, and if possible, in exchange for an American attack on Iran - just as his predecessor Ariel Sharon evacuated Gaza only after George W. Bush conquered Iraq.