Donald Macintyre: If Netanyahu can't halt the building, there is no hope

Even if a face-saving form of words is cobbled together before the current partial freeze on settlement construction ends tomorrow, it's unlikely to be the clear demonstration of good faith for which both Barack Obama and the moderate Palestinian leadership had been hoping.

Unless Mr Netanyahu simply announces that he is extending the present moratorium for another three months he will once again have been seen to deflect US pressure, and without notable political cost.

Mr Netanyahu must know that his resistance to extending the freeze has a symbolic as well as actual importance. If he does not have the political strength to face down the settlers and his coalition's right wing by halting building in settlements – all illegal under almost all interpretations of international law, including Britain's – then it calls into question whether he could ever reach the agreements on Jerusalem, borders and refugees necessary for a deal. And if his reluctance is a matter not of political weakness but of inclination, then it calls into question his sincerity about wanting a deal at all.

The impression left by Mr Obama's speech on Thursday is that he does nevertheless believe that a deal is possible. Maybe he infers that Mr Netanyahu believes the time for the inevitable showdown with his right wing is not now, but when agreement is actually nearer. But either way Mr Obama's heroic-seeming optimism will probably survive the flaky compromise on settlement construction that currently looks the best hope of keeping the talks going at all.

That said, it is hard to see how the talks can succeed in conditions which repeatedly humiliate Mr Abbas. The obstacles are tough enough without further undermining the Palestinian president. It would be rash indeed to assume that a severely weakened Mr Abbas would somehow agree a deal below the Palestinians' well-known bottom lines. Rather it would simply be all the harder for him to sell any form of deal if one is ever reached.

The paradox is that in some ways Mr Netanyahu would be politically well placed to make an agreement – if he chose. He would have to break decisively with the right wing of his coalition, of course. But he has the signal advantage over – say – Yitzhak Rabin or even Ehud Olmert of not having on his right flank another Netanyahu, a potential Prime Minister determined to sabotage any moves towards peace.

The question is whether he is just marking time in the hope of a more right-wing US Congress after November, he genuinely wants a deal but has grossly underestimated what he needs to concede to get it, or he wants to secure his place in history as a peacemaker and actually understands what it will take. The last seems on the face of it the least plausible; after tomorrow we may not know much more than whether the process itself can survive.