The Middle East peace process is finished. It did not die: it was killed. Mahmoud Abbas was undermined by the President of the Palestinian Authority and humiliated by the Prime Minister of Israel. His successor awaits a similar fate. Israel continues to mock its American patron, building illegal settlements in cynical disregard of the “road map.” The President of the United States of America has been reduced to a ventriloquist’s dummy, pitifully reciting the Israeli cabinet line: “It’s all Arafat’s fault.” Israelis themselves grimly await the next bomber. Palestinian Arabs, corralled into shrinking Bantustans, subsist on EU handouts. On the corpse-strewn landscape of the Fertile Crescent, Ariel Sharon, Yasser Arafat, and a handful of terrorists can all claim victory, and they do. Have we reached the end of the road? What is to be done?

At the dawn of the twentieth century, in the twilight of the continental empires, Europe’s subject peoples dreamed of forming “nation-states,” territorial homelands where Poles, Czechs, Serbs, Armenians, and others might live free, masters of their own fate. When the Habsburg and Romanov empires collapsed after World War I, their leaders seized the opportunity. A flurry of new states emerged; and the first thing they did was set about privileging their national, “ethnic” majority—defined by language, or religion, or antiquity, or all three—at the expense of inconvenient local minorities, who were consigned to second-class status: permanently resident strangers in their own home.

But one nationalist movement, Zionism, was frustrated in its ambitions. The dream of an appropriately sited Jewish national home in the middle of the defunct Turkish Empire had to wait upon the retreat of imperial Britain: a process that took three more decades and a second world war. And thus it was only in 1948 that a Jewish nation-state was established in formerly Ottoman Palestine. But the founders of the Jewish state had been influenced by the same concepts and categories as their fin-de-siècle contemporaries back in Warsaw, or Odessa, or Bucharest; not surprisingly, Israel’s ethno-religious self-definition, and its discrimination against internal “foreigners,” has always had more in common with, say, the practices of post-Habsburg Romania than either party might care to acknowledge.

The problem with Israel, in short, is not—as is sometimes suggested—that it is a European “enclave” in the Arab world; but rather that it arrived too late. It has imported a characteristically late-nineteenth-century separatist project into a world that has moved on, a world of individual rights, open frontiers, and international law. The very idea of a “Jewish state”—a state in which Jews and the Jewish religion have exclusive privileges from which non-Jewish citizens are forever excluded—is rooted in another time and place. Israel, in short, is an anachronism.

In one vital attribute, however, Israel is quite different from previous insecure, defensive microstates born of imperial collapse: it is a democracy. Hence its present dilemma. Thanks to its occupation of the lands conquered in 1967, Israel today faces three unattractive choices. It can dismantle the Jewish settlements in the…