I spent the summer of 1999 in Israel. Ehud Barak had just been elected prime minister, sparking a surge of optimism about the prospects for a two-state deal. We’re going to define our borders with the outside world, an Israeli friend told me. Then we can focus on the deeper conflict: inside Israel itself.

Fourteen years later, the optimism about the two-state solution is gone. But my friend’s statement retains a kernel of truth. And unless you understand it, you can’t understand the peace talks restarting this week.

On Wednesday, absent a last-minute crisis, Israel and Palestinian negotiators will resume haggling under the State Department’s watchful eye. Lots of issues could scuttle their efforts. Palestinian leader Mahmoud Abbas hates negotiating while Israel continues to build settlements. Israeli Prime Minister Benjamin Netanyahu hates having to release Palestinian prisoners in order to lure Abbas to the negotiating table. On the borders of a Palestinian state, the security arrangements that would bind it, and the fate of Palestinian refugees, the two men are solar systems apart.

But even harder than these concrete questions about the allocation of land, people, and guns may be a symbolic one: Netanyahu’s demand that the Palestinians recognize Israel as a “Jewish state.” Ron Dermer, Netanyahu’s top aide and incoming ambassador to the United States, has called it “the core issue.” Which is revealing, because it’s not really about the conflict between Israel and a Palestinian state. It’s about the conflict within Israel itself.

On the surface, Netanyahu’s insistence that Abbas recognize Israel as a “Jewish state” makes little sense. In the Camp David Accords, Egypt didn’t recognize Israel “as a Jewish state.” It just recognized Israel. Same with Jordan when it made peace in 1994. Ditto with the Palestine Liberation Organization, the organization Abbas now leads, which recognized “the right of the State of Israel to exist in peace and security,” in the Oslo Accords signed 20 years ago. Until recently, it wasn’t even clear if the United States recognized Israel as a “Jewish state.”

As Abbas declared in 2010, Israel is “free to call itself the Israeli Zionist Jewish Empire” if it wants. Why does Netanyahu need the Palestinians to define what Israel is?

The most common answer is that “Jewish state” is code for “no refugee return.” Since allowing Palestinian refugees and their descendants to return to Israel could imperil Israel’s Jewish majority, for Abbas to recognize Israel as a “Jewish state” would mean acknowledging that the refugees aren’t going back. But if the issue is refugees, why doesn’t Netanyahu just say so? It’s not as if he’s shy about insisting outright that no Palestinians can return. It’s hard to see what he gains by linguistic sleight of hand.

It’s also significant that top Israeli officials adamantly deny the connection between recognizing Israel as a Jewish state and preventing refugee return. “For those of you who think that this has anything to do with the refugee issue,” Dermer told an AIPAC crowd in 2009, “you’re wrong.”

Dermer’s right. Getting the Palestinians to call Israel a “Jewish state” isn’t about refugees. It’s about the struggle my friend spoke of 14 years ago: what will take place after Israel leaves the West Bank. For Netanyahu, the creation of a Palestinian state must mean the end of Palestinian claims against Israel. But there’s a problem. Even if Israel relinquishes the West Bank, it will still contain more than a million Palestinians. Jews generally call these folks “Israeli Arabs.” But surveys suggest that they increasingly call themselves “Palestinian” citizens of Israel. And even after the creation of a Palestinian state, they’ll have claims.

Israel’s Palestinian citizens don’t want to leave. Over the decades they have developed an identity distinct from their West Bank and Gazan cousins. They appreciate living in a prosperous, democratic country. But—and this is what keeps Netanyahu up at night—they don’t want that country to be a Jewish state (PDF). They don’t feel warm and fuzzy about a flag with a Jewish star and a national anthem that talks about the “Jewish soul.” They believe, as a high-profile Israeli government commission acknowledged in 2003, that Israel’s treatment of them “has been primarily neglectful and discriminatory.” Their kids can’t aspire to be prime minister. In ways both deeply symbolic and highly practical, they feel like second-class citizens as non-Jews in a Jewish state.

For Zionists who believe in the legitimacy of a state that protects and represents the Jewish people—and I’m one of them—the opposition of Israel’s Palestinian citizens to Israel’s Jewish identity is a profound challenge. Netanyahu wants Abbas to solve it for him. That’s the real agenda behind his insistence that Abbas recognize Israel as a Jewish state.

But Abbas can’t solve Netanyahu’s problem. Politically, he can’t accept something the Palestinians living inside Israel don’t. And even if he did, all he’d do is alienate himself from Israel’s Palestinian citizens. He wouldn’t make them feel less alienated from Israel’s anthem and flag.

What my friend in 1999 understood was that a Palestinian state, even if it lives amicably alongside Israel, won’t solve the Israeli-Palestinian conflict. It will shift the conflict inside Israel’s borders. For Netanyahu, I suspect, that’s an excellent reason not to cut a two-state deal. Why give away precious land if you’ll still wake up the next day with Palestinians challenging Zionism?

There’s an answer to that. The answer is that controlling millions of people for four decades without giving them basic rights, as Israel does in the West Bank, breeds hatred. And that hatred seeps across the green line, poisoning relations between Palestinians and Jews inside Israel. Without that hatred, Israel’s domestic challenge will be easier.

But it won’t be easy. At the core of Israel’s identity lies a tension. It was born to represent the Jewish people, and yet its declaration of independence promises “complete equality…irrespective of race, religion, or sex.” To flourish as a liberal democracy, Israel will have to do much, much more to make the Palestinians (and Eritreans and Filipinos and Thais…) who live inside its borders feel like full citizens. And to flourish as a Jewish state, it will have to do so while retaining some basic responsibility for the protection of Jewish life, a sacred mission for a country born in the shadow of the Holocaust.

Netanyahu wants Abbas to make that tension go away, but he can’t and it won’t. Easing it will be the job of Israelis, both Jewish and Palestinian. It’s impossible to know if they’ll succeed, even if a two-state deal is struck. We do, however, know that if John Kerry fails, and Israel’s occupation of the West Bank becomes permanent, we won’t even get to find out.