Donald Macintyre: What hopes now for peace in the Middle East?

The stark headline on yesterday's New York Times read "Israel faces isolation as new leader gets ready". The report referred to the backlash against the recent offensive in Gaza. But a bigger theme was Israeli concern at overseas reaction to the imminent premiership of a man for whom a two-state solution is not a priority – not to mention his appointment of a nationalist demagogue, Avigdor Lieberman, as Foreign Minister.

Nothing is ever for sure in Israeli politics till it happens. Labour's Ehud Barak could yet join Benjamin Netanyahu's government. Though less likely still, Tzipi Livni could still come aboard, presumably displacing Mr Lieberman as Foreign minister. This would certainly be better for Israel's international image. But would such a government, whatever its other merits, necessarily be an advance towards the ever more elusive-seeming goal of a negotiated peace?

Possibly not. The abject failures of the most recent process occurred under Ehud Olmert, a professed convert, however late, to just such a peace. He will no doubt blame the weakness of Mahmoud Abbas, ruling only in the West Bank. But it was Mr Olmert's government which accelerated expansion of settlement-building in the wake – and in defiance – of the Annapolis summit of 15 months ago.

The idea behind Annapolis was to make such progress in negotiations and in improving daily life in the West Bank, that the Palestinian people, including in Gaza, would, Hamas or no Hamas, vote for what would finally have become a tangible two-state solution. The reality was a hollow process, a journey towards a mirage. It's hard to imagine that Ms Livni, locked into a Netanyahu government, would do more than repeat such a process. But the danger is that the West would then simply give the same course – "Annapolis on steroids" as some diplomats waggishly call it – another run.

For all its real dangers, the one advantage of a narrow right-wing government is that it may concentrate minds in Washington on the need for a new approach. George Mitchell, President Obama's envoy, has already talked of the need for "a plan" rather than a process. By laying out its own parameters for a just peace, the US might just confront Netanyahu with the stark choice between compliance or the kind of rift with Washington that helped to sink his first government in 1999.

Netanyahu's chief preoccupation is Iran. Some Western politicians have been talking of a grand bargain in which Syria would be brought in from the cold, and in which a formidable Western-Arab alliance would be brought to bear against Iran's presumed plans for military nuclearisation. In return Netanyahu would have to offer something of his own.

And what better than to sign up to the Arab peace initiative under which Israel would be recognised by all its neighbours in return for a Palestinian state broadly along 1967 borders? After all, even though he has refused to countenance it in public, Netanyahu has privately told some diplomats – Quartet envoy Tony Blair among them – that he could contemplate an eventual Palestinian state.

There are, however, serious problems with this optimistic, if impeccably logical, scenario. One is the nascent difference between Washington and its European allies about how you get there. The former sees little future in Fatah-Hamas talks on a Palestinian unity government, without two preconditions: a Salam Fayyad premiership and – the very unlikely – agreement by Hamas to the famous Quartet principles, including recognition of Israel. Otherwise the US still appears to prefer a "West Bank first" strategy in which Hamas is ignored and improvements in the West Bank economy and resumed political negotiations would pave the way for President Abbas to win elections next year.

The Europeans – including Britain – would prefer to wait for the outcome of Fatah-Hamas talks, and judge it accordingly, arguing that a technocratic unity government provides the best chance both for Gaza's post-war reconstruction and for preventing Hamas from scuppering any diplomatic progress.

Another problem is the hard-core extremism in any narrow right-wing government that Netanyahu is likely to form. Debate about Lieberman has eclipsed another potential coalition partner, the ultra-nationalist National Union, implacably opposed to any partition and one of whose leading Knesset members is a former member of the outlawed and indisputably racist Kach organisation. And all this when increasingly few Palestinians and Israelis believe in the viability of the two-state solution they tell pollsters they would prefer.

That said, the one real legacy of Olmert's premiership, now in its final days, may be his prophecy that Israel is "finished" the day hope for such a solution runs out. Predictions of progress in the Middle East remain a triumph of hope over experience. But the new dynamic may at least afford Israel's true allies the opportunity to show they sometimes know better than Israel itself how to guarantee its future.