My Palestinian driver had reason to worry as we passed near the Israeli settlement Yitzhar in the West Bank. The settlement is notorious for frequent attacks on nearby Palestinian citizens. Only a month earlier, my driver had himself been attacked by a group of settlers with a big rock that barely missed his car. Two miles farther up the road, he reported the attack to an Israeli Army patrol that was in the area. The patrol commander asked if anyone in the car had been injured. “No,” the driver had said. “Then you can go, no problem if no one was hurt,” the Army personnel replied.

While my driver was lucky to escape the attack unscathed, others have been less fortunate. Returning to their Bethlehem home in August, the Ghayatha family was attacked by settlers who hurled a firebomb at their taxi. Ayman Ghayatha, his wife, their three children, and the taxi driver were all severely injured. “The United States condemns in the strongest possible terms yesterday’s attack on a Palestinian taxi in the West Bank,” said State Department spokesperson Victoria Nuland. Subsequently, violent attacks by Jewish settlers against “Palestinian residents, property and places of worship” were cited for the first time in the U.S. State Department Country Report on Terrorism as “terrorist incidents.”

While such a designation marks a significant development in how the U.S. treats the settlement issue, it threatens to remain a label on paper rather than a term that inspires action. Crucially, the designation “settler terrorism” fails to highlight that the Israeli government bears the major responsibility for this phenomenon through its own policy and the complicity of its response to this violence. Viewing this campaign simply as isolated settler terrorism is likely to limit understanding of the problem and obstruct an effective strategy for addressing it.

Settler terrorism has been rising sharply in recent years. The first half of 2012 alone witnessed 154 attacks. According to a report drafted by senior European officials in February this year, the number of attacks rose from 132 in 2009 to 411 in 2011. A UN report released in July 2012 said that settler terrorism targeting Palestinians in the West Bank had risen 150 percent since 2008. These attacks have not been restricted to violence against individuals. Places of worship (mostly mosques) have been torched, trees have been uprooted, and livestock have been slaughtered. Also in August, Israeli newspaper Haaretz reported that 14 sheep were killed in a settler attack against Palestinian shepherds near the West Bank village of Akraba.

There is increasing evidence to suggest that the Israeli government has been taking a passive and complicit role in dealing with settler terrorism. Dan Halutz, former Israeli Army chief of staff, recently told the Israeli Army radio that Prime Minister Benjamin Netanyahu’s government is not doing enough to stop settler violence. “If we wanted, we could catch them and when we want to, we will,” Mr. Halutz said. Furthermore, Haaretz and Channel 2 television reported in February 2012 that an Israeli justice minister was caught on tape advising right-wingers on how to seek pardons for Jewish terrorists – which he might later approve.

A March 2012 report by senior European Union officials said that “[d]iscriminatory protections and privileges for settlers compound…abuses and create an environment in which settlers can act with apparent impunity.” The report said these and other actions have created the perception that “settler violence enjoys the tacit support of the state of Israel.”

Successive Israeli governments of all ideological stripes – left, right, and center – can be held responsible for perpetuating the root causes of settler terrorism by creating and nurturing the settlement movement in the West Bank. They have largely pursued or refused to fully curb this policy, despite international consensus on the illegality of building those settlements.

The U.S. government has been right to consistently oppose Israeli policies on settlements as a serious obstacle to achieving peace and stability in the region. However, the U.S. failure to back up that rhetoric with action has helped create the monster of settler terrorism that is now proving so difficult to contain. While President Obama made the right decision in demanding a settlement freeze, his failure to back up his demand allowed the Netanyahu government to launch the most aggressive settlement policy to date.

Settlement activities in the Palestinian territories pose a structural threat to U.S. interests in the Middle East. As such, Washington must not shy away from confronting them. The U.S. State Department listing settler attacks as “terrorist incidents” clearly indicates a concern that such attacks may trigger a response from the Palestinians that could push the area into a new cycle of violence, something the United States cannot afford at a time of major upheaval and turmoil throughout the region.

The State Department’s decision to designate settler violence in the West Bank as terrorism presents an opportunity and a challenge for U.S. interests in the Middle East. It is an opportunity for Washington to correct the historic mistake of accommodating Israeli settlement policies that are inherently hostile to the regional stability the U.S. seeks. However, to effectively address the problem, the US must deal with its root cause: the Israeli government’s systematic expansion of settlements in the Palestinian territories. In order for that regional stability to be secured, my driver must feel safe while trying to make his daily wage, and the Ghayatha family must feel assured that they will never again be attacked while driving home.

Designating settler violence as “terrorism” is definitely the first step toward a solution. However, the Obama administration can do more to address the problem. The time has come for Washington to bluntly inform Israel that the U.S. is no longer willing to be associated with its violations of human rights in the Palestinian territories. It must make clear that in the future, Israeli policymakers will have to take full responsibility for their actions regarding settlements, without the guarantee of unconditional American protection.

Further, the U.S. should resist behaving in a hypocritical manner by labeling the phenomenon as “terrorism” when it has vetoed resolutions condemning Israeli settlements in the Security Council. Financial leverage is another tool the U.S. could certainly use to end a situation whereby American taxpayers’ money is indirectly funding settlement activities. The U.S. should make its financial aid to Israel conditional on the Israeli government’s compliance with international law and ending its settlement activities. A number of European countries have made progress on this front by boycotting settlement products on the basis of settlers’ involvement in human rights violations against Palestinian farmers in the West Bank.

Defining the phenomenon as settler terrorism also presents a further challenge for the U.S. Failing to fully act on the implications of this terminology could exacerbate America’s perpetual dilemma: being accused of “double standards” in the Middle East. Washington’s historic position on terrorism is well known for its zero tolerance – where terror is involved, actions follow words. A failure to apply those standards in this case will beg the question across the region: Are all terrorists created equal?