Israel's declared intention to build settlement housing in the E-1 area could destroy the possibility of the two-state solution. There are two possible U.S. responses. The first would be akin to President George H. W. Bush's consistent and tough settlements policy. The other would resemble President Bill Clinton's incoherent and soft settlement approach. The history surrounding these two presidents and their Mideast policies offers insight into the bold but high-risk maneuver of Israel’s current prime minister, Benjamin Netanyahu.

In the early 1990's, soon after the Madrid Middle East Peace Conference, President Bush warned Israeli Prime Minister Yitzhak Shamir that expansion of Jewish settlements in the occupied territories would hamper negotiations on the future of those territories. Bush told Shamir that if he wanted $10 billion in loan guarantees (needed by Israel for the absorption of Jewish immigrants from the former Soviet Union), he would have to freeze the settlements project. Shamir rejected the American ultimatum and asked America’s pro-Israel lobby to mobilize Congress against the administration so Israel could get the aid without conditions. Bush knew he needed Jewish support in his forthcoming reelection campaign, but he refused to bend on a position he considered in America’s national interest. In the end, he lost his reelection bid.

But so did Shamir. His public confrontation with Bush during Israel’s 1992 election campaign contributed to the defeat of his right-wing Likud party, which was replaced by a Labor government headed by Yitzhak Rabin. The result was a new seriousness in the peace process. In September 1993 the new U.S. president, Bill Clinton, witnessed the signing ceremony of the Oslo agreement on the White House South Lawn.

Five years later, with Clinton still in the White House and Israel involved in negotiations over what was supposed to be the final status agreement with the Palestinian leadership, Netanyahu, then the newly elected Likud prime minister, approved construction of the new settlement of Har Homa, between Jerusalem and Bethlehem, which was annexed by Israel after the 1967 Six-Day War. Palestinian President Yasser Arafat and other Arab leaders protested this provocative move, designed to separate East Jerusalem from the West Bank. Clinton joined European leaders in demanding that Israel avoid unilateral action. They argued this violated the commitment to refrain from creating “facts on the ground” that could prejudge the final status agreement. Netanyahu ignored the international pressure and the presidential entreaty. Although the second-term Clinton faced no more elections, he contented himself with a verbal denouncement of the provocative action. The American reluctance to use its leverage in this case eroded the Palestinian trust in the United States and in the peace process. The 13,000 Jews who live today in Har Homa are a living message to the Israelis that the noise of settlement bulldozers is stronger than any noise from the White House in Washington.

The planned construction in the E-1 area (“Mevaseret Adumim”), which lies north of the built-up area of Ma'ale Adumim, is a repetition of the Har Homa project. Both of them were designed to create a continuity of Jewish land between Jerusalem and the West Bank. Both of them jeopardize the possibility of a two-state solution. Both were initiated at a critical junction of the peace process.

The decision to build 3,000 units in area E1 is described as a "punishment" for the UN General Assembly's vote to upgrade Palestine to the status, in the UN view, of a non-member observer state. Israel argues that the unilateral UN move is proof that Mahmoud Abbas, the leader who has extended his hand to negotiations, is a “non-partner.” But this ignores the fact that the Palestinian initiative is based on the two-state principle, which has been fully embraced by Israeli and Palestinian negotiating teams and accepted, at least publicly, as an obligation by all Israeli governments going back decades. The initiative could serve as a driving force for the renewal of political negotiations based on those agreements. Instead, the E-1 construction and additional projects declared by the Israeli government as punitive measures punish Israelis along with Palestinians. That’s because they strike a blow against prospects for a two-state solution and hence prospects for peace.

They also punish the Obama administration, which considers the settlements to be an impediment to the two-state solution—and which considers the two-state solution to be an American vital interest as well as an Israeli one. So the question is: Will Obama adopt Bush’s superpower approach or Clinton's lip-service policy? And, either way, what will be the impact on the relationship between Israel and the United States, as well as between the peoples of those two countries?