There are two narratives at work in Israel that have a bearing on the capacity of its leaders to negotiate the creation of an independent Palestinian state next to it. The first is official and intended for external consumption. It is the one that claims Israel is ready to sit down with the Palestinians in direct talks without preconditions and Mahmoud Abbas, the Palestinian president, should not have wasted so much of the 10 month partial freeze on settlement building before he did so. On Saturday, America was given another month by the Arab League to persuade Binyamin Netanyahu's government to halt settlement building, the bare minimum required for talks to continue.

There is however a second narrative, which could be called business as usual, and it has nothing to do with occupation, Iran's nuclear programme, Hizbullah's rocket arsenal, or any threat which could be called existential. This was evident in all its inglory yesterday when the Israeli cabinet approved a measure requiring candidates for Israeli citizenship to pledge loyalty to "the state of Israel as a Jewish and democratic state". The naturalisation oath would not apply to Jews, who are granted automatic citizenship under the law of return, so it is, by definition, discriminatory. The existing text binds individuals to declare their loyalty to the state of Israel. The new version requires future citizens to declare their loyalty not just to a state but an ideology, one specifically designed to exclude one fifth of its citizens who see themselves as Palestinian.

Palestinian Israeli leaders have described this proposal as racist. Palestinian Israeli citizens do not have to take this oath, but their partners seeking naturalisation do. Neither could agree with Israel's characterisation of itself as a Jewish state. It could be a state of Jews and all its citizens, but never a Jewish state. Nor is this the only bill around. There are 20 others in the slipstream that have a similar effect: there is a loyalty law for Knesset members and for film crews; there are bills that make it a criminal offence to deny the existence of Israel; that penalise the mourning of Nakba Day; that force any group financed by a foreign nation to report each contribution; and a bill to deny ethnic minorities' access to Jewish settlements. The authors of these proposals not only intend to create a state ideology but to police it.

The question that lies behind this is why, and why now? Are these the actions of a nation prepared to make a historical compromise, end occupation and live in peace with its neighbourhood? If they are and we are all wildly misinterpreting this, why alienate and incite the very people who could have helped by their example bring a historic settlement about, people who have accepted the existence of Israel, who have never in their history taken up arms against it? This applies to Christian as well as Muslim. The opposite is happening. The Palestinian Israeli experience of inequality and discrimination only promotes the view that being a minority in a state with a Jewish majority is rapidly becoming untenable.

The Labour minorities minister Avishay Braverman described the loyalty oath yesterday as a terrible mistake. But it is surely more that. Mistake implies miscalculation, and there is calculation in this. It seeks to pre-empt negotiation on the third core issue after borders and the division of Jerusalem – the right of return of Palestinian refugees to sovereign Israeli territory. Abbas happens to be one of those refugees. If Netanyahu refuses to extend the settlement freeze, Abbas, the most pliant Palestinian negotiator Israel is likely to encounter, has threatened to resign, dissolve the Palestinian authority or seek US and UN recognition for a future Palestinian state. Netanyahu is only hastening the day when this happens and in one sense, he is doing the world a service. Future citizens will be swearing loyalty to a state that can not make peace.