The Palestine papers reveal that Israel has – or had – a partner for a negotiated two-state solution. They reveal that our previous government, led by Ehud Olmert as prime minister and Tzipi Livni as foreign minister, discussed a detailed partition plan involving serious give and take with its Palestinian interlocutors. Alas, the Palestine papers also reveal the lack of political will to conclude the deal, shown by the wide gaps over substantive positions, and both sides' leaning towards fruitless debating, rather than seeking a compromise.

The first batch of papers gives a detailed account, partly verbatim, of the Annapolis process that lasted from November 2007 to late 2008. While the contents and maps of Olmert's proposal to the Palestinian president, Mahmoud Abbas, have been published before, now, for the first time, we get a glimpse of the Palestinian counter-proposal on borders, security, and Jerusalem.

The details indicate that Annapolis was the most serious attempt so far at reaching an Israeli-Palestinian deal. Mocked upon its inception as an empty drill of powerless leaders, Annapolis saw both sides' leaders put all outstanding issues on the table and offer solutions. The mechanism of quiet talks below the media radar and low expectations allowed for more progress than the high-expectation, media-event conferences of Camp David vintage.

The Bush administration, and particularly Condoleezza Rice, deserves more credit that it usually gets for its contribution to Middle East peacemaking. Rather than "shrugging it off," as the myth goes, or simply serving as Israel's diplomatic shield, the Bush team facilitated the removal of 25 Israeli settlements from Gaza and the West Bank in 2005, and pushed for a final-status deal in Annapolis. To be sure, Rice is less than pushy in her leaked conversations with Livni and the Palestinian negotiator Ahmed Qurei. Perhaps a more assertive US approach could narrow the gaps.

Both sides' positions on territory – the basic element of any deal – show agreement on the principle of an independent Palestine within the 1967 borders, amended through territorial swaps to compensate the Palestinians for West Bank settlements annexed to Israel.

Their agreement marks an Israeli victory. The fathers of Israel's settlement enterprise, like Moshe Dayan, envisaged border changes through settlement building. However grudgingly, the Palestinians now propose a new border, which incorporates the largest settlements near the old Green Line into Israel. This is particularly true in East Jerusalem, where the Palestinians accepted the principle of ethnic partition among neighbourhoods. Thus most settlers would remain on the Israeli side, and Israel could expand its perilous "narrow waists" around Tel Aviv and Jerusalem.

Here agreement ends. The Palestinians refused to acknowledge the annexation of major settlements – Ma'ale Adumim, Ariel, Efrata, Givat Ze'ev, and Har Homa (in south Jerusalem) – that carve up the West Bank into loosely connected Palestinian enclaves. But these areas, especially Ma'ale Adumim and Ariel, have been enshrined in the Israeli political catechism as "parts of Israel for ever" – and Livni duly expressed this position to the Palestinians' chagrin.

While the disputed areas are relatively small in acreage, disagreement over them can kill the deal. The security clauses invoked similar differences. What Israel considers as necessary measures to protect its citizens, such as border and airspace controls, the Palestinians view as occupation in disguise.

The Palestinian negotiators cited their fear of Hamas and other adversaries who may exploit any compromise to embarrass and weaken Abbas. Interestingly, Livni did not use similar arguments of political disability. But in effect each side was trying to export its civil war to the other. Evacuating more and bigger settlements would only deepen the inevitable domestic crisis in Israel, while swallowing Ma'ale Adumim and Ariel could undermine the legitimacy of any Palestinian government. That's why the Palestinians never bought Livni's suggestions that they should accept less than their aspirations. Unlike the Irish, who took the British offer, established their republic in the south and left Ulster to the future, the Palestinians insist on fulfilling what they consider as their "rights".

Was peace within reach and a major opportunity missed? The political odds were against it, with Bush's lame-duck presidency reaching its end and Olmert's downfall over corruption allegations, followed by Operation Cast Lead in Gaza. There was not enough political capital around to fuel a compromise.

But despite the principle that "nothing is agreed until everything is agreed", nothing is forgotten either. The papers, especially the leaked maps, will serve as the starting point for future negotiations. Moreover, they undermine the "no partner" doctrine of Israel's current leadership trio: Binyamin Netanyahu, Ehud Barak and Avigdor Lieberman. While falling short of accepting Israel's positions, Abbas and Qurei have not simply pocketed Olmert's proposals and walked away, as Israel argues. They negotiated in earnest.

Notwithstanding his anger at their publication, the papers give Abbas a strong hand in his diplomatic jiujitsu match with Netanyahu. If he can stand by his proposals in the face of adversaries and detractors, Abbas will show his political courage – and prove to be the partner we seek.