The landscape seems hopeless. But time is also working against both sides in different ways.
For Israel, a failure to divide the Holy Land into two states seems to be national suicide since the fast-growing Arab population in the area could soon outnumber Jews. If Gaza is included in the equation parity at about 6 million each looms even today; Palestinians argue that Gaza remains occupied because Israel controls its sea access and airspace and blockades most of its land border. Most Israelis, including the hard-line Netanyahu, acknowledge the status quo endangers Israel as a democracy with a solid Jewish majority.
For Palestinians, their dream of a state grows ever more distant as Israel continues to settle the West Bank and east Jerusalem with Jews. Although they increasingly wave the "binational state" threat as a default outcome of inaction, with its implications of the future demographic destruction of Israel, Palestinian leaders do seem to genuinely prefer the two-state option still possible — if barely — now.
A partial deal could provide relief for both sides. By decisively extricating itself from large parts of the West Bank, Israel would greatly diminish the demographic threat and blunt international criticism. The Palestinians would gain independence over much of the land they seek without having to drop their claims over east Jerusalem and refugees. What to do with Gaza could be left aside, along with Jerusalem, for a future final agreement.
Netanyahu, who won re-election by a whisker in January, has said his new government will make a renewed push for peace, though he has given no indication of how.
His new chief negotiator, dovish Justice Minister Tzipi Livni, told a security conference last week that while a final agreement must remain the goal, "I do definitely think that we need to think about additional possibilities in case we won't be able to end (the conflict), because a situation with a lack of a solution is unacceptable."
While Netanyahu's government is filled with hard-liners who reject any significant concessions to the Palestinians, he also could expect support from some prominent voices. Netanyahu's largest partner, Finance Minister Yair Lapid's Yesh Atid Party, has also demanded a serious peace push.
Silvan Shalom, a Cabinet minister in Netanyahu's Likud Party, voiced support for a provisional agreement. "Our goal is to reach an agreement (even) if it is in stages," he told Israel Radio Tuesday.
Israeli opposition leader Shelly Yachimovich, a fierce opponent of Netanyahu, said she would "seriously reconsider" joining his government if a temporary deal is reached.
Yossi Beilin, a former Israeli Cabinet minister who negotiated the interim peace accords with the Palestinians in the 1990s that created the autonomous Palestinian Authority, said another partial accord would make sense now. He noted that the "Road Map," a U.S.-led peace initiative from a decade ago, called for a Palestinian state with provisional borders in its second phase while the stickiest issues were worked out.
"The practical offer that America can bring to the table, and this is what I really hope Obama will bring tomorrow, is an attempt to help both of the sides to seriously check the realization of the second stage of the Road Map," he said.
Beilin said he has discussed this idea with Netanyahu and Abbas in recent months, and both were open to the idea.
"Mahmoud Abbas said he would be ready for something like this under two conditions. The first condition is that he will receive the vision of the final agreement ... and the second thing is that he receives the timetable until a final agreement. Obama can provide both those things in my opinion," Beilin said.
A Palestinian official who was present during the meeting confirmed the conversation had taken place but could not say whether Abbas was in agreement. He spoke on condition of anonymity because he was not authorized to reveal details of their meeting to the press.