An Almighty argument: Amos Oz may not care for God but he believes devoutly in debate, language - and jokes

If Amos Oz had helped to steer the politics of Israel with the same insight, empathy and wisdom he has brought to his fiction over the past 45 years, then the Middle East might today be a zone of peace -and irony, and jokes. "I was approached a few times by people who wanted me to run for office," he says.

An understatement: Israel's former Labour leader Shimon Peres, now the nation's president, reportedly once spoke of Oz as a possible successor, though the author then moved left to the Meretz party. "But I think I would make a very poor politician. I'm incapable of pronouncing the words 'no comment'. Besides, no one would write my books for me."

Oz, a peerless imaginative chronicler of his country's inner and outer transformations ever since the young kibbutznik began writing fiction in the mid-1960s, has always twin-tracked shrewd and often brave public advocacy with the single-minded life of literature. The two lines run in parallel; they do not converge. "I try not to mix the two. When I tell a story, I never try to make a point. A story is an end in itself… At the same time, I have been politically engaged for all my adult life - and perhaps even shortly before."

The punditry - perhaps even, the prophecy - ranks as a necessary evil that history has decreed. Now 73, Oz sits in his London publisher's top-floor boardroom and speaks with exquisite, drily humorous precision about places, and ages, of blood and rage. He says: "I wish there will come a time when people read my works - my stories and my novels - without inserting… the question, 'Is Israel good or bad? Has Israel the right to exist or should it die?' I wish that such a time will come. In fact, for me, the fulfillment of the Zionist dream will occur when Israel is removed once and for all from the front pages and news pages and instead occupies the literary supplements, the musical supplements, the gardening supplements. That would be the day."

One fruit of his political engagement consisted of the essays about the route out of violence now re-published as How to Cure a Fanatic. Oz, one of the founders of the Peace Now movement, remains steadfast in his commitment to the "two-state solution" of equally independent, mutually respectful Israel and Palestine. These days, that proposition - his answer to the region's tragic collision of right against right - looks to many like damaged goods. Just consider the alternative, says Oz: "The 'one-state solution' is no option at all because it would be a lunatic idea to try and push into a honeymoon bed two deadly enemies who have been fighting each other for more than a hundred years." His own preferred slogan runs: "Make Peace, Not Love".

But how feasible is this disentanglement? I mention that, when I was in Jerusalem for the city's writers' festival in May, I went to Ramallah in the West Bank, to visit the Palestinian author Raja Shehadeh. He drove me around the hills to show how the tight-woven pattern of new Israeli settlements has stitched up the rolling landscapes of Judaea. But Oz's response reveals his radicalism: those Jewish settlers should become citizens of Palestine. "There will be always an Arab minority in the Israeli state. There can be a Jewish minority in the Palestinian state. It's not the end of the world, as long as two nations have equal rights of self-determination," and can "develop relations of decent neighbourliness."

Conflict-free proximity, rather than cosy familiarity: such a limited harmony often feels like a tough call for the divided and self-divided characters of Oz's fiction, let alone for the warring peoples who share the land. Ever since early works such as My Michael, and in landmark novels such as The Same Sea, the Jerusalem-born writer has exposed the endless obstacles and detours on a road-map to peace within a village, a marriage, a family - or a human mind. It's always, for his people, a heroic - an epic - task to set their own small houses in order. "I'm a provincial writer," he says. "I like writing about provincial places. Sometimes I even think that almost all great literature is provincial." He cites Chekhov, Faulkner and Garcia Marquez. All dig giant stories from miniature patches of soil. As does Oz.

He was born Amos Klausner in 1939 ("Oz" means "strength" in Hebrew), his Lithuanian and Polish parents tragically vulnerable to all the dreams and despairs of idealistic immigrants. After the tumultuous Jerusalem upbringing recounted in his great memoir A Tale of Love and Darkness, with his mother's sucide as its terrible finale, he moved as a teenager to the Hulda kibbutz to help construct the socialist, Zionist dream. "A kibbutz is a very small village… But it's a microcosm. I learned more about human nature in my 30 years on Kibbutz Hulda than I would have learned if I travelled ten times around the world… I came to know all the secrets, all the intimate gossip… For a writer, this is a goldmine."

He also possesses the treasure of his language: the modern Hebrew he has helped to mould. "Hebrew is my love, it's my musical instrument." With each other, his parents "spoke in Russian and Polish. They read German, French and English for culture. They dreamed their dreams in Yiddish. But to me, they only talked Hebrew. Not for chauvinism… but because in the 1940s they were afraid that if I knew even one European language, I might be seduced by the deadly charms of Europe - and go to Europe and catch my death!

Whatever their dark motives, he cherishes the old-young tongue. "A language that had been almost as dead as ancient Greek or Latin is revived - spoken in my childhood 60 years ago by less than half a million people; spoken today by more than 10 million. In this language of the Bible people fly jumbo jets, conduct open-heart surgery, launch satellites into orbit." Forget making the desert bloom; a Hebrew author can make the tongue flower. "Modern Hebrew has many things in common with Elizabethan English. The language is like melting lava, like an erupting volcano."

Since the mid-1980s, Oz has lived in the desert town of Arad: once again, a social microcosm. "The desert begins five minutes' walk from my home." Every day begins for him, at five, with a walk into it. Yet change also reaches far into this small world. Arad is now "heavily Russian", with 40-45 per cent of its people Jewish migrants from the ex-Soviet Union. These Russians "tend to be more hawkish, more right-wing and more untrusting. They don't trust anything that comes from the government - not even the weather forecasts!"

The interlinked stories of Oz's Scenes from Village Life portray the intersecting - but somehow isolated - citizens of the fictitious "pioneer village" of Tel Ilan. Its people remain both closely bound to one another and yet - as the title of one story has it - "Strangers". "Loneliness," even among family, lovers, neighbours, is its principal theme, Oz affirms. The deep rifts between Jewish Israelis - or even within torn individual minds - that he so often explores raise the question of where any core of solidarity might lie.

It's a theme that, with mischief, wit and (yes) sheer chutzpah, Oz and his historian daughter Fania Oz-Salzberger answer in a forthcoming book: Jews and Words. For father and child, the Jews - never a single ethnic group, not much of a political entity, not even a coherent religion in their view - share above all not a bloodline but a textline. Arguments and remonstrations about the meaning of books and stories unite and bind the community, generation upon generation. The family that kvetches together, stays together.

Shamelessly secular, the Ozes root their Judaism in words, ideas and - most crucially - "self-biting" interpretative debate. "We have no use for the synagogue," Oz says. "We believe that Judaism is a civilisation based mostly on language." For them, "Jews not only disagree with each other. They often disagree with God. The Jewish tradition, starting from Genesis, is full of... arguments with God." As for the disputatious rabbis of the Talmud, Oz cites his favourite tale of "reverent irreverence": the story of Akhnai's Oven. "Two saintly rabbis argue about interpreting the law in their capacity as judges. And they cannot reach a verdict. They will die arguing, but God has mercy on them. A voice is heard from above, saying 'Rabbi Eliezer is right. Rabbi Yehoshua is wrong. Go to sleep.' And then the loser, Rabbi Yehoshua, turns his eyes upward and says, 'Please keep out of it. You have given the Torah to human beings. Buzz off! Buzz off!'"

Ever since Abraham wrangled with God over the fate of Sodom like "a shrewd second-hand car dealer", Jewish dialectic has dared to scold the Almighty. As for the Ozes, "secular to the bone" but profoundly devoted to Jewish tradition, they have no hesitation in telling pious believers where to go. But can they pick and choose: the jokes, tales, heroes and heroines, with none of the theology? "People will hurl at us that Judaism is package deal: take it or leave it. It's not a package deal. It's a heritage. And a heritage is something you can play with. You can decide which part of the heritage you allocate to your living room, and which part goes to the attic or to the basement. This the legitimate right of every heir. And I regard myself as a legitimate heir of the Jewish civilisation. I can relegate some of the heritage to the attic."

In the book, this boisterous excitement over words and ideas generates a little paradise beyond politics. It opens up a garden of play and joy, of dispute without hate and passions without victims (except the meddlesome God of all the fundamentalists). "In Judaism," Oz insists, "nothing - nothing at all - is above debate and above joking. My grandmother used to say, when you have cried out all your tears… that's the time to start laughing."

'How to Cure a Fanatic' and 'Scenes from Village Life' are published by Vintage; 'Jews and Words' by Amos Oz and Fania Oz-Salzberger appears from Yale University Press on 29 November