All bets are off in Middle East

Senior Israeli officials were, however, sceptical that such a formula would be acceptable to Prime Minister Binyamin Netanyahu. "Netanyahu will have a problem pushing that through his cabinet right now, and the Palestinians have nothing to lose, since they are not really being asked to give up on anything, not even to say straight out that Israel is a Jewish state." But sources close to Mr Netanyahu noted with satisfaction that the Americans had finally dropped the demand for a freeze in settlement building.

American diplomats remained optimistic that the Israeli side could be persuaded to return to the table in return for a commitment from the Palestinian Authority not to push through a unilateral recognition of a Palestinian state at the UN General Assembly in September.

Advisers to Palestinian President Mahmoud Abbas have confirmed in recent days that he is worried that the move could cause a major breach with the American administration and also with central European countries such as Germany, whose Foreign Minister, Guido Westerwelle, reaffirmed his country's opposition to a unilateral move this week during a visit to Israel.

Another development that could be exploited to push the sides back to the negotiating table is the fact that the Palestinians have yet to consummate the Fatah-Hamas deal. Two months after it was signed, the Palestinians factions have not agreed on the make-up of the new "technocrats" government. Hamas announced this week that it was vetoing Salam Fayyad's candidacy to become prime minister of the new government.

Mr Netanyahu is continuing his efforts to shore up support for Israel's opposition to a unilateral recognition of the Palestinian state. The Israeli government realises that the potential resolution is assured of a majority in the General Assembly but is trying to persuade as many major countries to vote against it in order to empty such a decree of any meaning. So far he has received assurances from the US, Canada and Germany and, this week, during a visit to Rome, Mr Netanyahu gained the support of Italian Prime Minister Silvio Berlusconi.

Another concern shared by Israel and the US is the attempt by some EU member states to launch an alternative diplomatic track. Last week, both Israel and the US turned down a French proposal to launch talks in a peace conference in Paris.

This week, EU foreign affairs chief Baroness Ashton, with the backing of the foreign ministers of Britain, France, Germany, Spain and Italy, called for an urgent meeting of the Quartet to agree upon an international framework for talks, based on the Obama principles.