The latest collapse of the Middle East peace process has underlined a reality that the Obama administration has resisted since it took office -- that neither the current Israeli government nor the Palestinian Authority shares its passion for moving quickly toward a two-state settlement. And it has left President Obama with a tough choice: quietly shift one of his prized foreign policy priorities to a back burner -- or launch a risky redoubling of U.S. efforts.

Israelis and Palestinians have conducted face-to-face peace talks off and on for 18 years without agreeing on the issue of Jewish settlement construction in the West Bank and Gaza Strip. Yet the prospect for a renewal of the negotiations that began in September collapsed Tuesday after the Obama administration was forced to announce the abandonment of its latest effort to strike a deal with the government of Binyamin Netanyahu on settlements. Netanyahu agreed in principle to a three-month partial freeze of building in the West Bank but demanded that the White House put its quid pro quo -- including $3 billion worth of advanced warplanes -- in writing. Meanwhile, the Palestinians preemptively announced that the deal wouldn't be good enough for them to end their walkout from the talks, because it didn't include Jerusalem.

As I have pointed out before, the settlements are mostly not material to a deal on a Palestinian state, since both sides accept that the majority of them will be annexed to Israel in exchange for land elsewhere. The issue has become an obstacle in large part because of Obama's misguided placement of emphasis on it, which forced Palestinian President Mahmoud Abbas to embrace a hard line.

But the fact that the administration has been unable to take the issue off the table -- even after offering gold-plated bribes to Israel in exchange for a 90-day freeze -- reflects the fact that both sides are happy to have an excuse not to talk to each other.
Abbas has resisted negotiating with Netanyahu ever since he took office early last year, saying he doesn't believe the right-wing Israeli leader will ever offer serious peace terms. But Abbas also turned down a far-reaching offer from Netanyahu's predecessor; and he's never spelled out his own terms for a settlement. By now it should be obvious: at age 75, he prefers ruling a quiet West Bank to going down in history as the Palestinian leader who granted final recognition to a Jewish state.

Netanyahu has made an effort to show that he is ready to negotiate seriously about Palestinian statehood. But the terms he has talked about -- including a long-term Israeli military presence on the West Bank -- are considerably more stringent than those Abbas already turned down. Even the suggestion by Netanyahu that he would consider concessions such as a division of Jerusalem would probably cause the collapse of his right-wing coalition.

U.S. officials are saying that they will continue to talk to the two sides separately, beginning with meetings next week in Washington with aides to Netanyahu and Abbas. They say they will set the settlement issue aside, and -- as Arab leaders have been urging both in public and private -- focus on the more fundamental issues of a final settlement.

Yet Obama will not meet his goal of an agreement on Palestinian statehood by next August through indirect talks. So this impasse presents him with a choice: He can slow the pace and ambition of his Mideast diplomacy, bowing to the reality that, as former Secretary of State James Baker famously put it, the United States cannot want peace more than the parties themselves. That would give U.S. and Israeli officials time to quietly continue working with Palestinian Prime Minister Salaam Fayyad, who is trying to build the tangible institutions and security forces needed for statehood.

Or Obama could do what Abbas, Egyptian President Hosni Mubarak and Jordan's King Abdullah have wanted all along: prepare a U.S. or international plan for Palestinian statehood and try to impose it on both sides. History -- including that of the last two years -- suggests that double-or-nothing bet would produce a diplomatic fiasco for Obama and maybe a new war in the Middle East. But given Obama's personal fascination with Middle East diplomacy, there's a reasonable chance he'll try it.