In his recent speech to the UN general assembly, Palestinian Authority president Mahmoud Abbas warned that Israel's ongoing settlement construction in East Jerusalem and the occupied West Bank would make the creation of a viable Palestinian state alongside Israel "extremely difficult if not completely impossible".

It is not only Palestinians who see Israeli settlements as one of the main obstacles to peace – the international community does too, as do many Israeli peace activists.

Despite that, there is a small but growing group of religious settlers who believe that far from being an impediment to peace, they can actually help build it. This movement is led by the charismatic Rabbi Menachem Froman.

Rabbi Froman cuts an unlikely figure as a peace activist. He is an ideological settler, yet believes in the two-state solution along the pre-1967 green line. He was one of the founders of the messianic, religious settler movement, Gush Emunim ("Bloc of the Faithful"), and supports continued Jewish settlement in the West Bank, yet believes in and promotes coexistence between Palestinians and Israelis, Jews and Arabs.

Adding to his maverick credentials, Froman was friends with the late Yasser Arafat and met regularly with the late Sheikh Ahmed Yassin, the spiritual leader of Hamas. He is also close to Abbas, meets regularly with Binyamin Netanyahu, and negotiated, along with Palestinian journalist Khalid Amayreh, a ceasefire agreement with Hamas, which would have ended the blockade on Gaza – which the Islamist group agreed to but Israel simply ignored.

This renegade rabbi so intrigued me that I visited him, along with an American-Israeli filmmaker making a documentary about this enigmatic figure, in his modest home in Tekoa, an Israeli settlement near Bethlehem.

So, how does Rabbi Froman propose to square the circle between his support for Jewish settlements and Palestinian statehood? Religious Muslims and Jews believe, he says, "that this land is holy … that this land belongs to God. This can be a very strong basis for peace".

In his view, since it is the land itself that is holy and not the political structure governing it, settlers should be given the choice to become part of a Palestinian state or move to Israel. Froman also believes that the presence of an Arab minority in Israel and a Jewish minority in Palestine would have the additional benefit of promoting tolerance and understanding between the two neighbouring countries.

The Palestinian Authority has, on a number of occasions, floated the possibility that Israeli settlers can be given the option to live under Palestinian sovereignty. However, this option elicits fears. Palestinians worry that the settlers would remain Israeli citizens and hold on to their privileged status, as well as possibly providing Israel with a pretext to carry out military incursions, even invasions.

I asked Froman whether, in his vision, the settlers would become Palestinian citizens and live according to Palestinian law, and whether the settlements would become mixed neighbourhoods for all. "Yes, yes, yes," he responded emphatically. "The keyword here is to be open, to be free."

Froman's vision chimes with that of some pro-Palestinian Israeli leftists. However, ideological settlers, who generally see the land and Israel's control over it as vital, do not share Froman's vision. "I reject the two-state solution," David Wilder, the spokesperson for the radical settlers in Hebron, told me some months ago. "I want to live in Israel. I came to live in Israel, under Jewish leadership. I didn't come to live under the rule of anybody else, certainly not an Arab."

Economic settlers are also unlikely to want to become Palestinian citizens, though they could more easily be persuaded to move under the right conditions.

"The question is not the Palestinian attitude," Froman freely acknowledges. "The question is the Israelis: if Israel and Israeli settlers are ready to be part of the Palestinian state."

But he believes that, once they overcome their fear and distrust, people can be persuaded. "It's all a matter of confidence," the rabbi insists.

Froman is also a strong believer in the power of religion to resolve the conflict. This, you could say, was something of a revelation to me, as I have long viewed religion as a major stumbling block on the path to peace – it is what I call the "God veto".

But Froman believes that one major factor behind the failure of the peace process is that it ignored or did not pay enough attention to the religious dimension. "[Sheikh] Ahmed Yassin used to say to me: 'I and you, Hakham [Rabbi] Froman, can make peace in five minutes, because both of us are religious'."

The very idea that an Orthodox rabbi and an Islamist sheikh would engage in dialogue, let alone believe that they can resolve a conflict that has defied everyone else for decades, is likely to confound both Palestinians and Israelis alike.

"Religion is like nuclear energy: you can use it to destroy or to kill. You can also use it for peaceful purposes," the rabbi observes. "The Dome of the Rock or the Temple Mount can be a reason to quarrel or a reason to make peace."

Despite his fine words, I left the meeting sceptical that Froman's vision would, especially in the current climate, attract many takers. However, our encounter did drive home some important lessons: the situation is never black and white, peacemakers can be found in the most unlikely places, and that we must understand the obstacles to peace if we ever hope to remove them.