Since its inception in Oslo almost two decades ago, the Israeli-Palestinian peace process has been stymied by the dysfunctional political systems of both sides. Hostage of an impossible coalition and of a settlement movement of freelance fanatics, Israeli prime minister Binyamin Netanyahu's leadership is seriously compromised. His Palestinian counterparts are hardly in a better position.

Today, the clique that surrounds Palestinian president Mahmoud Abbas embodies the bitter deception that the peace process has meant for the Palestinians. Moreover, the Palestinian Authority has come neither to represent the majority of Palestinians nor to rule by democratic means.

Abbas's presidential term has expired, and elections are constantly being postponed. The PA's prime minister, Salam Fayyad, like his Hamas counterparts in Gaza, rules by decree, keeps parliament inactive, and silences the opposition. With no institutionalised democratic legitimacy, the PA is bound to rely on its security forces and on those of the occupier, Israel, to enforce its will.

Of course, throughout history, national liberation movements have had to marginalise their own radicals and fanatics in order to reach the Promised Land. This was true of Zionism, of the Italian Risorgimento, and most recently of the Catholics in Northern Ireland. But never did the outcast faction actually represent the democratically elected majority. A peace process conceived as a means to weaken and isolate the winners of an election – Hamas – is unlikely to gain much traction.

Like George W Bush, President Barack Obama confines his diplomatic engagement largely to friends rather than adversaries. This, more than anything else, explains the growing disconnection between Arab public opinion and the Obama administration.

The assumption – dear to the architects of the current process – that peace can be achieved by driving a wedge between "moderates" and "extremists" is a fatal misconception. The paradox here is double. Not only does one negotiate with the illegitimate "moderates", but it is precisely because of their legitimacy deficit that the moderates are forced to be unyielding on core issues, lest the radicals label them treasonous.

The Palestinian negotiators' dangerous lack of legitimacy – and, indeed, the disorientation of the entire Palestinian national movement – is reflected in the return of the PLO to its pre-Arafat days, when it was the tool of Arab regimes instead of an autonomous movement. The green light was given to the current negotiators by the Arab League, not by the elected representatives of the Palestinian people.

Obama's endorsement of Netanyahu's claim that if Israel is recognised as a Jewish state and its security needs accepted, "I will surprise, and the sky is the limit," has made the current process possible. But maximal security – for example, an insufferably long timetable for withdrawal, unreasonable territorial demands wrapped up as security needs, an Israeli presence in the Jordan valley, and full control of Palestinian airspace and the electromagnetic spectrum – would inevitably clash with Palestinians' view of what sovereignty entails.

For Netanyahu, the creation of a Palestinian state means the end of conflict and the finality of claims. By reopening Israel's demand to be recognised as the state of the Jewish people, he is forcing the Palestinians to insist even more on the constituent issues of the conflict, first and foremost on the so-called "right of return" of Palestinians who fled or were driven out after Israeli independence in 1948.

Abbas is too weak and compromised to accept any final settlement with which Netanyahu can live. Arafat set the standard as to what is acceptable and what is not, and Abbas cannot allow himself the luxury of deviating from it. As he admitted in a recent interview with the Palestinian newspaper Al Quds, if pressured to concede on sacred Palestinian principles such as refugees, Jerusalem and borders, he would "pack his suitcase and go away".

It is not impossible that with Hamas in the picture, an agreement could end the occupation, if not the conflict. In other words, such a process would deal with the issues of 1967 – defining a border (including Jerusalem), withdrawing and dismantling settlements, putting in place security arrangements, and the Palestinians' assumption of full governance responsibility – while shelving for the future those of 1948.

Hamas is a far more convenient partner for such a settlement than the PLO. Oddly, Hamas and Israel might have more common ground than Israel and the PLO. Israel wants an end to the conflict but is incapable of paying the price, whereas Hamas can better reconcile its ideology with a peace agreement with Israel if it is not defined as final.

The end of the conflict, like the requirement that Israel be recognised as a Jewish state, is a concept that has unnecessarily acquired mythical meaning. Instead of insisting on what the Palestinians cannot give, Israel should focus on what is essential: the international legitimacy of its borders. United Nations Resolution 181 in 1947 has already recognised Israel as a Jewish state. And even if Palestinian negotiators agreed to end the conflict once and for all, the chances that all Palestinian factions would abide by such a settlement are nil.

Whatever route is taken, the great question today concerns the enigma that is Bibi Netanyahu, a would-be Churchill who believes that his mission is to thwart the designs of Iran's evil new Shia empire, something that requires the goodwill of the international community, and particularly of the Obama administration. It is not entirely far-fetched to assume that Netanyahu finally calculated that if he wants more room to manoeuvre to deal with Iran, he must participate in the peace process with the Palestinians.

But, in that case, Iranian quiescence, not peaceful relations with an independent Palestine, might be Bibi's true objective.