Israel has been sliding into ever greater isolation in the few last years and this process has accelerated since Binyamin Netanyahu came to power in 2009. The international community is put off by his tactics: whenever the question of Israel's settlement policy comes up, he diverts attention to the Iranian nuclear threat. He argues that the world is facing a situation similar to 1938, and that its reaction is that of Neville Chamberlain, trying to appease Adolf Hitler. The world doesn't buy Netanyahu's rhetoric; his policy of stalling the peace process is perceived as a cynical ploy hiding Israel's true intent of holding on to the territories.

This explanation fails to take into account that Netanyahu's rhetoric reflects a paradoxical state of mind of the Israeli electorate. Polls show that a consistent 70% majority of Israelis favouring the two-state solution. So why has Israel's electorate been moving consistently to the right in the last decade? Why is Netanyahu's popularity in Israel so high? And why is Israel's public less willing than ever to listen to criticism of Israeli policies?

This development can be elucidated by a universal tendency of the human psyche uncovered by existential psychology in the last two decades. When under threat, particularly mortal threat, humans tend to defend psychologically by entrenching in their world views. These world views, which include identity narratives of righteousness, become ever more rigid under these circumstances, leading to growing distrust, hatred and negative prejudice against out-groups. Criticism of the in-group and its world view is rejected categorically.

This theory predicts that Israel's move to the right reflects a sense of existential threat. To outside observers this may seem absurd, given that Israel is a regional superpower generally assumed to have a substantial nuclear arsenal, whereas the Palestinians don't even have a standing army. Nevertheless all polls show that Israel suffers from deep anxiety about its viability.

Part of the explanation is quite concrete: Two realistic threats have indeed emerged in the last years. The first is the possibility that Iran will acquire nuclear weapons, a threat that most Israelis see as catastrophic. The second is that groups like Hezbollah and Hamas have moved from suicide terrorism to rocket attacks on Israel. Israel, for the first time since 1973, is faced with security threats to which it has no clear-cut answer. As a result, Israel launched massive attacks in Lebanon in 2006 and against Gaza in 2008-9 under the assumption that the price of rocket attacks must be destruction on a substantial scale. This has pushed Israel into unprecedented international isolation.

Israel's electorate reacted to this sequence of events exactly as predicted by existential psychology: during operation Cast Lead, the Israeli public was unwilling to tolerate any criticism of the massive destruction in Gaza, and in the 2009 elections it moved strongly to the right and effectively erased the Israeli left.

The result is a vicious circle in which Israel feels that its existential fears are not taken seriously. Israel's electorate moves towards leaders who address but also keep reinforcing its fears. International opinion becomes ever more negative, which in turn reinforces Israel's isolation which in turn raises existential fears.

This has one, very unfortunate, consequence. Israel's best chance of minimising the threat from Hamas and Hezbollah and minimising Iranian influence in the Middle East is to engage with the Arab League peace initiative. If Israel were to normalise relations with all of the Arab and most of the Islamic world, particularly Syria, Hezbollah and Hamas would be isolated to the point of having to move towards abandoning violence and recognising Israel's legitimacy.

Taking this road requires Israel to take a risk and bet on the positive dynamics of a peace process. But this is precisely what Israel is incapable of doing after the traumas of the second intifada and the shelling of southern Israel. Israelis at this point prefer international isolation, painful as it is, to reliance on Arab peace partners for its own security.

Are there any ways to get Israel out of its growing distrust of the external world? Experimental existential psychology suggests two main means: one is, obviously, lowering the real or perceived mortal threat. The other is to decrease the sense of isolation.

The Obama administration has addressed both issues lately. It is stepping up security co-operation with Israel and increasing its military aid, particularly to allow Israel to complete the Iron Dome anti-missile defence system developed to provide an answer to the short-range rockets used by Hezbollah and Hamas.

Barack Obama has also changed course in that he has given Netanyahu a warm welcome after more than a year of giving him the cold shoulder. This, as most commentators assume, does not reflect a policy change: Obama is adamant to go ahead with implementing the two-state solution, but he has come to the conclusion that embracing Israel is a more effective way of getting there than to isolate it.

The big question is whether this will in any way influence Netanyahu's overall security conception, that Israel must retain control over certain areas in the West Bank to have an effective answer to any future attack coming from the East of Israel. Since this does not allow for territorial contiguity of the future Palestinian state, it will be unacceptable for the Palestinians and the international community.

Nobody knows what Netanyahu's long-term strategy is, exactly – and sometimes I doubt that he knows. But there is a simple way of gauging whether he is about the change course. Tensions between Netanyahu and his foreign minister, extreme rightist Avigdor Lieberman, have been mounting lately.

The day Netanyahu changes his coalition by ousting Lieberman's hawkish Yisrael Beiteinu party and replacing it with Tzipi Livni's centrist Kadima, we will have a strong indication that he is moving towards genuine progress with the Palestinians.