The world watched in horror yesterday as the conflict in Gaza claimed its latest innocent victims in the rubble of a UN school. Any hopes of reconciliation are being snuffed out as anger spills into protests around the world.

The past two weeks have been a telling indictment of the international community. We have an outgoing US president sanctioning Israel's military response and an aching silence from the president-elect. We have a European Union encumbered by clumsy decision-making and confused messages.

And at home we have a prime minister talking like an accountant about aid earmarked for Gaza without once saying anything meaningful about the conflict's origins. Gordon Brown, like Tony Blair, has made British foreign policy effectively subservient to Washington. But waiting for a change of heart in Washington is intolerable given the human cost.

Of course, Israel has every right to defend itself. It is difficult to imagine what it must be like to live with the constant threat of rocket attacks from a movement which espouses terrorist violence and denies Israel's right to exist. But Israel's approach is self-defeating: the overwhelming use of force, the unacceptable loss of civilian lives, is radicalising moderate opinion among Palestinians and throughout the Arab world. Anger in the West Bank will make it virtually impossible for Mahmoud Abbas, the Palestinian Authority president, to continue to talk to Israeli ministers.

Brown must stop sitting on his hands. He must condemn unambiguously Israel's tactics, just as he has rightly condemned Hamas's rocket attacks. Then he must lead the EU into using its economic and diplomatic leverage in the region to broker peace. The EU is by far Israel's biggest export market, and by far the biggest donor to the Palestinians. It must immediately suspend the proposed new cooperation agreement with Israel until things change in Gaza, and apply tough conditions on any long-term assistance to the Palestinian community.

Brown must also halt Britain's arms exports to Israel, and persuade our EU counterparts to do the same. The government's own figures show Britain is selling more and more weapons to Israel, despite the questions about the country's use of force. In 2007, our government approved £6m of arms exports. In 2008, it licensed sales 12 times as fast: £20m in the first three months alone.

There is a strong case that, given the Gaza conflict, any military exports contravene EU licensing criteria. Reports, though denied, that Israel is using illegal cluster munitions and white phosphorus should heighten our caution. I want an immediate suspension of all arms exports from the EU, but if that cannot be secured, Brown must act unilaterally.

Finally, the world's leaders must accept that their response to the election of Hamas has been a strategic failure. The removal of the EU presence on the Egypt border in response to Hamas's election, for example, has made it easier for the rockets being fired at Israel to get into Gaza in the first place. An EU mission with a serious mandate and backing from Egypt and Israel would help Israel deal proportionately and effectively with the threat from weapons smuggling.

Attempts to divide and rule the Palestinians by isolating and punishing Gaza will not succeed. To secure peace in the Middle East, Hamas must turn its back on terrorism, and help create Palestinian unity. Only unified leadership in the West Bank and Gaza can offer Israel the security guarantees that it rightly seeks.

My proposals to stay Israel's hand in this conflict may be unwelcome to some, but they have the country's long term interest at heart. No terrorist organisation has ever been defeated by bombs alone. Only a new approach will secure lasting peace for Israel itself.

• Nick Clegg is the Liberal Democrat leader cleggn@parliament.uk

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