"With this law Israel buys an exit ticket from the family of nations," wrote Israeli journalist Nahum Barnea last week in the newspaper Yedioth Ahronoth.

“The proposed loyalty law... is really racist. It obliges non-Jews to declare that they would be loyal to the Jewish state but exempts Jews from this obligation.”

But Israeli Prime Minister Benjamin Netanyahu’s proposed new law is not racist, just shortsighted and nasty.

It is really about foreign policy: Netanyahu has also just demanded that the Palestinian Authority recognise Israel as a “Jewish and democratic state”. Back in 1977, prime minister Menachem Begin said exactly the opposite: “We do not (demand that) our right to exist in the land of our fathers be recognised.”

“It is a different recognition which is required between us and our neighbours,” Begin continued: “Recognition of sovereignty and of the mutual need for a life of peace and understanding.”

In other words, take the concrete steps that Israel needs for a peaceful and secure future, and don’t demand that everybody else subscribe to your own philosophical self-description.

Begin observed that principle in the peace treaty he signed with Egypt in 1979, and Yitzhak Rabin used the same language in the 1994 peace treaty with Jordan. In both treaties the parties recognise each other’s sovereignty, integrity and political independence, but there is not a word about Israel’s Jewishness. That’s an internal issue for Israelis (who are, in any case, divided about the definition of who is really a Jew).

Defining a country in ethnic and/or religious terms sounds racist to people who live in multicultural societies like the United States, India or South Africa, but it is actually quite common. Few people object to the “blood and soil” definitions of nationality that prevail in Germany and Japan, or to states that proclaim themselves to be Islamic Republics. On one condition: that they do not treat their ethnic or religious minorities as second-class citizens.

Israel’s constitution declared it to be a “Jewish state” way back in 1948, but in theory its laws apply equally to all its citizens including the 20 per cent Arab minority. (In practice, Israeli citizens of Arab descent have a hard time, but Israeli governments use the shield of sovereignty and say that that is a purely domestic issue.)

Netanyahu’s predecessors avoided any mention of Israel’s “right to exist” or its Jewish character when they made peace treaties with Egypt and Jordan, because real sovereign states do not negotiate these matters with other governments. A different approach was needed for the Palestinians in the occupied territories, because they didn’t have a state yet.

When Israel finally began talking to the Palestine Liberation Organisation in the early 1990s, Prime Minister Yitzhak Rabin demanded that the PLO publicly recognise Israel’s right to exist. (It complied in 1993.) However, Rabin never asked the Palestinians to acknowledge the “Jewishness” of the Israeli state, because that would be a deal breaker.

You can’t ask Palestinians whose parents or grandparents were driven from their homes during the 1948 war, and were not allowed to go home again after the fighting ended because that would undermine the “Jewishness” of the new state, to accept that definition as legitimate. All you can ask, if you really want peace with them, is that they accept the reality of the Israeli state and recognise its borders.

So when Netanyahu raised the ante last week by demanding that the Palestinians recognise Israel specifically as a Jewish state ( and not just a sovereign state), Palestinian leader Mahmoud Abbas replied: “Name yourself the Hebrew Socialist Republic - it is none of my business.”

Israel can call itself whatever it wants and define itself however it likes, but it cannot demand that other states accept those definitions. So why would Netanyahu make such a demand if he wants the peace talks to succeed?

He doesn’t. He is unwilling to face the huge political crisis that would erupt if he agreed to withdraw all or even many of the half-million Jewish settlers who have colonised large parts of the West Bank and the Gaza Strip (the land that the Palestinians still controlled after 1948). Since that would necessarily be part of any peace deal, he doesn’t actually want one. But he can’t say that, because it would infuriate Washington.

The United States is Israel’s vital ally, and President Barack Obama really does want a peace deal, so Netanyahu must wreck it without making it look like it is Israel’s fault. Step one, late last month, was to refuse to extend the partial moratorium on new construction in the Jewish settlements that he agreed to late last year.

The Palestinians had already said publicly that they would end the talks if he did that, and most people abroad don’t blame them for that. How can they be expected to negotiate while the Israelis are still expanding the Jewish settlements on their territory? But something else was needed to shift the blame for the collapse of the talks decisively onto the shoulders of the Palestinians. That something was Netanyahu’s declaration that he will renew the settlement freeze only if the Palestinians acknowledge Israel as a Jewish democratic state. He knew they couldn’t accept that offer, which is why he made it.

The proposed law requiring new citizens to swear allegiance to Israel as a “Jewish and democratic state” is just window-dressing to divert the attention of foreigners, especially Americans, from his real strategy. It will badly hurt Israel’s image overseas, but it is not racist. It is just ugly and self-serving.