As Israelis feverishly restarted work on the construction of 350 housing units on the West Bank, the recently started Israel-Palestine negotiations stalled before making any substantial progress. The Middle East peace process seems to have returned to its old pattern, as many observers had expected.

The settlement issue is one of the toughest to be addressed in the final status negotiations. Neither side will make concessions lightly. The reason is not only that it is a zero-sum game where one side's gain is the other's loss, but also the cultural and historical symbolism of the settlements.

Over the years, the Israelis have made many excuses for settlement building, such as security concerns and natural population growth. But the real significance of the settlements goes far beyond what is said openly.

For Israel, settlement building is both an expansion of its living space and a part of its history and its identity as a Jewish nation. The pioneers of the modern Israeli state began by buying land and constructing settlements as the initial stage on the way to their final goal of a Jewish nation. These traditions have been passed down from generation to generation. Even today there are many Israelis who regard the construction of settlements in the Biblical areas of Judea and Samaria, the West Bank area, as a right granted to them by God.

For Palestinians, settlement building means Israeli encroachment into their territory, where they and their ancestors have lived for centuries. It is also a reminder of the Israeli occupation that has lasted more than half a century, and a visible symbol of Israel's intransigent policy towards the Palestinians. Given the sensitivity of the issue, Mahmoud Abbas, President of the Palestinian Authority, initially insisted on a suspension of settlement building as a precondition for negotiations, before giving way under intense American pressure.

Given this background, it is no wonder the peace process came to a standstill once the settlement issue surfaced. But all sides seem anxious to restart the process. Nabil Shaath, a veteran Palestinian politician, said Palestinians would accept a two-month extension of the freeze to see if the two sides can reach an agreement on the broader territorial issue of a swap of land for settlements, but if, after two months, there is still no deal, the freeze would have to be extended. Benjamin Netanyahu said he was seeking a compromise on the settlement issue, although none has been put forward so far. The Americans have been talking about incentives in return for Israeli compliance.

Optimists hope the wisdom of Israeli and Palestinian politicians will overcome the difficulties. However, Netanyahu's latest proposal that Israel to extend the settlement freeze for two months if the Palestinians recognize Israel as a Jewish state seems to be a tactic to shift blame for the failure of the negotiations rather than a serious policy. The Palestinians immediately refused his proposal, taking into account the interests of Arab citizens of Israel and Palestinian refugees.

The outcome will largely depend on whether Netanyahu can persuade his cabinet members to accept a plan that will restrict settlement building. After all, compared with Israel, the cornered Palestinians have even less room for compromise.

But considering the rightwing makeup of the Israeli cabinet, such a plan is unlikely to be acceptable. Netanyahu will have to face up to the prospect of either stalled negotiations, or the breakup of his cabinet that would follow the imposition of a freeze. To put it another way, he will have to choose between longer-term Israeli interests, defined as peaceful coexistence with the Palestinians, or the short-term survival of his cabinet.

But we should bear in mind that even though the negotiations have stalled, it does not necessarily mean the failure or reversal of the peace process. Despite the zigzag nature of the process over the years, the prospects for relations between the Israelis and the Palestinians have become clearer, seen from a historical perspective. The Oslo agreement in the first half of the 1990s established the status of Palestinian Liberation Organization led by Yasser Arafat as the legal representative of Palestinians. And George W. Bush, regarded as a reluctant supporter of the peace process, nevertheless put forward the two-state solution to Israel-Palestine conflict, marking the recognition of the nationhood of the Palestinians by the U.S. government.

Though we do not yet know what minimum agreement may emerge from the current round of peace talks, we have reason to believe it is gradually taking shape.

Dr. Jin Liangxiang is a research fellow with Shanghai Institutes for International Studies.

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