RAY SUAREZ: For more on what the construction of this settlement could mean for the stalled peace process, I'm joined by David Makovsky of the Washington Institute for Near East Policy, and Ghaith Al-Omari, executive director of the American Task Force on Palestine.

And, David, is this, strictly speaking, in response to the vote on observer status in the U.N., or is this some something that the Israelis have wanted to do anyway?

DAVID MAKOVSKY:, Washington Institute For Near East Policy: Well, it's a little of both.

I mean, clearly, after they went to the U.N., the Palestinians, Netanyahu faced choices. The U.S. Congress has held up $200 million. He felt, if he didn't convey the customs tax duties that is actually Palestinian, the P.A. could collapse, the Palestinian Authority could collapse. He didn't want that.

So, he came up with this settlement idea. And partly there's two different pieces to it, is my understanding, is that there's the issue of building in what's called the settlement clusters blocks around the Jerusalem area. It's about 5 percent of the land that the world assumes will be Israeli in a final deal.

But the Palestinians say there is no deal yet. So you're pre-judging that deal. And then there's the issue of the E1, which is an area that Israel sees as linking East Jerusalem and its -- one of its biggest settlements, Maale Adumim to the east, but Palestinians see that 4.5-mile bottleneck area as severing north and south.

So, it's -- you know, is he really going to go forward or is he just saying, I'm having a planning meeting because he knows it's very sensitive? That's really where -- is this political theater for Netanyahu in an election period where he's worried about a party to his right? Or is it about something more serious than that?

RAY SUAREZ: Well, Ghaith, which is it? Is this a really significant issue for the Palestinians or just another example of the constant political back-and-forth between these two sides?

GHAITH AL-OMARI, Task Force on Palestine: Basically, as you know, settlement construction, per se, is problematic for Palestinians.

But this in particular is problematic at least on three levels. One, as David mentioned, if it's to be built and if it's to built to the full extent of the plan and the zone for it, it will really bisect the West Bank into two parts and will make it impossible to create a continuous Palestinian state as a result of negotiations.

That's one. Two, the location around Jerusalem would disconnect Jerusalem from the rest of the West Bank, making it very difficult, if not impossible, to create the Palestinian state with East Jerusalem as its capital, which is the Palestinian objective in negotiations.

And, finally, from a political point of view, the way this registers among the Palestinian public, among the Palestinian electorate, is this is seen as another proof that Israel is less interested in peace, more interested in buying time to built settlements.

Irrespective of whether or not this is accurate, the reality is that perception is reality in the Middle East. And, therefore, we see a strategic risk here and we see a political risk.

RAY SUAREZ: Israel's friends in the West, David, have already spoken out against this. But is that definitive? Does Israel really worry what Francois Hollande of France thinks or the German Foreign Ministry?

DAVID MAKOVSKY: Normally, they actually do because these are two countries that have actually been very friendly with Israel in recent years.

But Israel right now is in an election period before Jan. 22. When Netanyahu stopped the Gaza war without a land operation, there were a lot of people saying, hey, you didn't go all the way against Hamas. And they ate into a huge share of his voters. And I think he wants to say no one is going to be able to outflank me from the right.

And part of the tragedy, to get to Ghaith's point, is -- part of the tragedy of this conflict is that the parties cannot agree on a common definition of what is provocative, except they agree on one thing, that they each assume the worst of the other side's ultimate intentions.

So, Israel might say, look, this is political theater. And ultimately we're going to discuss this. There will be a two-mile tunnel from north to south. We won't sever the West Bank at all.

But the media, the government, everyone says, no, no, there must be something nefarious going on here. The answer in my view is to get to the negotiating table, sit together and to discuss these most sensitive issues like E1.

RAY SUAREZ: Well, ground hasn't been broken on a single house. Who is in a position to make Israel reconsider? Is it the United States?

GHAITH AL-OMARI: Bottom line, yes.

As David said, Israel right now faces an international problem. And I think what -- we saw that last week in the U.N. with Israel being in the minority. But what really matters for Israel is the United States.

Now, the U.S. has many ways of communicating with Israel. There are many channels, public, private. But this is where the U.S. can come in.

And it's not the first time, by the way. On the E1 in particular, this settlement project, there were previous times where the U.S. put its foot down and there was a freezing of constructing this.

So, really, now it's best for U.S. diplomacy to deal with this current crisis. But, ultimately, as David said, if the U.S. doesn't take leadership and bring the sides together into a virtuous dynamic of mutual diplomacy, we will end up with more and more of these instances that will drive the parties aside and will result ultimately in a crisis.

RAY SUAREZ: We saw Saeb Erekat deploring the situation, but the Palestinians being warned. The Israelis said they were going to come back with them if this statehood vote went ahead. Can they plausibly act wounded or surprised the week after?

GHAITH AL-OMARI: There are two ways of approaching this. You can approach it as a tit for tat, I would use the word even infantile way of dealing with the conflict, or you can approach it as a grownup.

You look at your ultimate objectives.

If Israel and the Palestinians want a two-state solution, they both should do nothing on the ground to preclude the two-state solution. But to basically cut your nose to spite your face is not, in my view, rational policy.

RAY SUAREZ: And on the Israeli part, David, they have gone from saying the U.N. vote doesn't matter to acting like it really matters. Which is it?

DAVID MAKOVSKY: Well, I think, for them, the nuclear weapon kind of thing would have been to cut off the funds, because the P.A. wouldn't have had enough money to pay salaries.

The Israelis actually gave advances before the U.N. votes because they saw this coming. They didn't want to cut them off. So, I think that for them this was like a second-tier response, not a first-tier, again, defining provocation.

For most of the Israeli government, if you tell them only you're going to keep 5 percent of the West Bank and whatever 5 percent you keep has to be offset with a land exchange, the Israelis will say that's not provocative.

But the world doesn't see that. All they know is, they see bulldozers on television. And that's what they see. But that's part of the tragedy of this conflict is that you can't agree on what is a provocation, except that each side agrees the other side has got bad intentions.

RAY SUAREZ: Well, you heard Ghaith talking about the two-state solution. Does that exist more in rhetoric than it does in reality? Is there still a two-state solution?

DAVID MAKOVSKY: Look, I think there is, as long as we're all confined to that 5 percent of the West Bank.

But if there's benign neglect in the second term of an Obama administration, in my view, this will get out of hand. And I am concerned about it. I think we're not there yet.

But if there's four years of neglect, then each side takes unilateral steps. And then we're in a very different place. And so -- and, therefore, that's why it's very important to get these parties to the table right now.

RAY SUAREZ: Quick final comment from Ghaith.

Do Palestinians still believe that the two-state solution is on the table?

GHAITH AL-OMARI: Absolutely.

Public opinion over and over again believes that the two-state solution is doable, is preferable. They do not believe that it's realizable in the foreseeable future.

And this is where the risk lies. If the public starts losing faith in the realizability of a two-state solution, soon enough, they will abandon it. And if they abandon it, we end up in a crisis situation.

RAY SUAREZ: Ghaith Al-Omari, David Makovsky, good to talk to you both.

DAVID MAKOVSKY: Thank you.