Illustration by Peter Schrank

BACK in the autumn of last year, Ehud Olmert, then Israel's fading prime minister, and Mahmoud Abbas, the Palestinians' more durable president, were astonishingly close to a peace deal. Judging by an interview with Mr Olmert published in Newsweek in June, after he had given up his post, they appeared to have been only a whisker apart—though Mr Abbas has since called the gap “wide”. But it is worth spelling out what Mr Olmert says he offered, in an account that other senior Palestinians have pretty much verified. For it starkly shows what both sides need to do to clinch the deal—and how feasible it is.

According to the report, Mr Olmert offered the Palestinians nearly 94% of the West Bank as the basis of their would-be state, plus land swaps of Israeli territory to make up the difference, amounting to nearly 6%, plus a safe-passage road-corridor to link Gaza with the West Bank.

Mr Olmert is said to have also offered to internationalise the sovereignty of the “holy basin” of Jerusalem—principally, the Western (“Wailing”) Wall, which is sacred to Jews, and the al-Aqsa mosque (the Dome on the Rock) above it that is revered by Muslims. The city of Jerusalem, by implication, would be shared as a capital of both states, with the Palestinian one on the east side, the Israeli one on the west.

Finally, perhaps most controversially, Mr Olmert says he offered to let a small number of Palestinians return to the lands in Israel from which they or their forebears had fled after the Jewish state was founded in 1948. That did not, says Mr Olmert, amount to a “right of return”. The number who would go back to Israel was “smaller than the number the Palestinians wanted”. Although Mr Abbas put a different slant on the offer, they were groping towards what some diplomats say might be a mutually acceptable formula: an acknowledgment of the Palestinians' right of return that would largely be symbolic, rather than a passport for millions. Elsewhere, a figure of 30,000 returning Palestinians has been informally mooted.

If drawing borders is the simplest problem and the mechanisms for sharing Jerusalem the most complex, the argument over the Palestinians' right of return may well be the thorniest of all, because if huge numbers of Palestinians returned, Israel would no longer be a predominantly Jewish state. A formula has been aired whereby the number could go up or down, year by year, in sync with Israel's population.

Binyamin Netanyahu, Israel's present prime minister, seems to want to be more rigid than Mr Olmert was, by insisting as a precondition for talks that the Palestinians drop their claim to a right of return and that they formally acknowledge Israel as a “Jewish state”. But for the Palestinians this would pre-emptively destroy the hope even of a symbolic statement by Israel acknowledging the “catastrophe” (nakba, in Arabic), as they term it, that befell them when Israel was created. Moreover, the Palestinians fear that, if they gave in to Mr Netanyahu on this score, that might undermine the rights of Israel's Arab citizens, who make up a fifth of Israel's population.

Mr Abbas, who does not deny the nub of the account, felt unable to sign on, especially as Mr Olmert was already on his way out of government. Besides, on the question of the map, which was perhaps the most dramatic of the various near-breakthroughs, Mr Olmert would not, he says, actually let him have a copy.

Moreover, the entire negotiation that followed the meeting at Annapolis in late 2007, under the aegis of President George Bush, was “poisoned”, in the words of the chief Palestinian negotiator, by Israel's refusal to stop building Jewish settlements in the West Bank. Recently it was reported that the number of Israeli settlers there (excluding the 190,000 Jews who now live in what used to be Arab East Jerusalem) had surpassed 300,000. The figure has doubled in a dozen years. The longer the Israelis continue to settle the West Bank, and to cut roads through it that can often be used by Israelis only, the harder it will be to create a workable Palestinian state on contiguous land rather than a series of cantons criss-crossed by Israeli roads connecting settlements. Moreover, Israel's security barrier already fences off more than 9% of the West Bank, according to a recent UN report. The longer the settlers have to dig in, the harder it will be to displace them under a final agreement.

Those toxic settlements

Hence Barack Obama's concentration on squeezing Mr Netanyahu into stopping the settlements' building and expansion, including what is known as “natural growth” to cater for burgeoning settler families. In the past few weeks the Israeli leader has been trying to wriggle off Mr Obama's hook, with suggestions of a moratorium (of perhaps three to six months), with permission to finish buildings already under construction. The Palestinians, however, still say they will not resume talks unless all settlement-building stops, as Mr Obama has demanded.

At least Mr Obama has persuaded Mr Netanyahu to concede the principle that the Palestinians should have a state of their own, something he had resolutely opposed in public. However, since the Israeli prime minister spat out the words “Palestinian state” (prefixed by “demilitarised”) just once in a speech in mid-June, he has shown scant enthusiasm for bringing one into being.

A number of his close friends say there is no chance of it happening, anyway. In a telling vignette in July, Benzion Netanyahu, the prime minister's 100-year-old father, a historian and leading ideologue of the Israeli “Revisionist” school that promotes the idea of a Greater Israel stretching from the Mediterranean to the Jordan river, confidently assured Israelis in a television interview that his son had set conditions for the Palestinians that he knew they could never accept.

By insisting that they recognise Israel as a Jewish state as a precondition for talks, Israel's prime minister has already demanded more of the Palestinians than Mr Olmert did. Mr Netanyahu has also gone on to declare that they must recognise Jerusalem as Israel's undivided capital. This contradicts the Palestinians' passionate belief that the eastern (and once overwhelmingly Arab) part of the city would be their own state's capital.

Indeed, on the question of stopping the building of Jewish settlements in the West Bank, Mr Netanyahu's government has insisted it will continue to sanction “natural growth” across the Israeli-occupied territory. It will also encourage the continuing expansion of Jewish neighbourhoods in East Jerusalem. This, in turn, makes life more irksome for Palestinians from that part of the city, because of the rigorous and intrusive Israeli controls they are subjected to.

All the same, even if Mr Netanyahu is bent on building settlements, he has been rattled by Mr Obama's apparently equal determination to stop him. It is the first time in nearly two decades that an American president has twisted Israel's arm so hard. It is possible that something close to a freeze will be agreed on with Mr Obama's envoy, George Mitchell. After Mr Netanyahu met him this week, he agreed to halt a building project in East Jerusalem. If the Palestinians can be convinced that settlement-building has “stopped” (Mr Obama's word), peace talks may yet resume.

Who speaks for Palestine?

Yet the Palestinians' own divisions may well be deep enough to prevent progress. For it is widely acknowledged, at least outside Israel, that no deal between Israelis and Palestinians will stick unless it is endorsed both by the Islamists of Hamas and by its secular rival, Fatah, the movement led by Yasser Arafat until his death in 2004, when he was succeeded by Mr Abbas. The two groups are at loggerheads, despite the efforts of Egypt and others to bring them together in a unity government. This would, among other things, accept all prior agreements of the Palestine Liberation Organisation, the national umbrella movement, with Israel—including recognition of it (see article).

In 2006 Hamas defeated Fatah in a general election, getting 44% of the votes to 41%, winning a large majority of seats in the Palestinians' parliament. But because Hamas refused to recognise Israel or disavow violence, its government was isolated by Israel, with the endorsement of America and a Quartet of countries and organisations, including the UN, the EU and Russia. A year-and-a-half later, after a short-lived spell in coalition with Fatah, Hamas violently took over the Gaza Strip. Complaining about the countless rockets that the Islamist group was firing into Israel, last December Mr Olmert's outgoing government launched a fierce assault on Gaza, which left at least 1,200 Palestinians and a dozen Israelis dead. But Hamas's control over the territory has not wavered.

In the past few weeks, blood between the Palestinian rivals has been as bad as ever, with Hamas arresting scores of Fatah people in Gaza, while Fatah returned the compliment in the West Bank. Each side is accused of torturing its prisoners.

Yet, as Mr Obama changes the mood and raises expectations, prominent Palestinians on both sides realise that only if they accommodate each other will they have a chance of getting a state for themselves. Amid massive doubts, Fatah insists it is about to hold a party congress in Bethlehem, on the West Bank, to produce a more dynamic leadership; it would be Fatah's first such event in 20 years.

In January the Palestinians are due to hold presidential and parliamentary elections. Pollsters, who have not always been accurate in their predictions of Palestinian voting, say Fatah should win. A recent poll gave it 35% to Hamas's 19%. The Islamists may be even less popular in Gaza, where some blame them for the grievous suffering under Israel's continuing blockade.

Mr Abbas might win the presidency against Hamas's Gaza-based prime minister, Ismail Haniyeh. But if Marwan Barghouti, a charismatic Fatah man now in an Israeli jail, could run, he would handily beat them both. He would also have a better chance of conciliating Fatah and Hamas—and a better one of striking a deal with an Israeli government.

The two-state idea will not come to fruition, certainly not in the next few years, unless the Israeli government sincerely wants it to, and unless Palestinian leaders settle their own differences in the interests of their people. Mr Mitchell knows this. Mr Obama probably knows it too.

Mr Olmert, who came closer to a deal than anyone realised, was once a Greater Israel man. Some say Mr Netanyahu may be persuaded to follow his predecessor down the same path. Many Palestinians once believed that time was on their side and that Israel would one day disappear. Now even Hamas seems to concede that Israel is there to stay. Large majorities of Israelis and Palestinians now want two states, side by side. It is still possible that one day they will get their way.