A senior U.S. State Department official told Haaretz Friday that U.S. President Barack Obama is disappointed with Prime Minister Benjamin Netanyahu's reaction to his Middle East policy, faulting Netanyahu for focusing on the issue of 1967 borders instead of looking at his policy as a whole and especially the alternative he proposed to the unilateral declaration of the Palestinian state at the United Nations.

"There were plenty of things in support of Israel," the official told Haaretz, citing Obama's wariness of the recent reconciliation of Hamas and Fatah, his condemnation of terror perpetrated by Hamas and his call for Palestinians to halt unilateral steps toward recognition. The official added that Obama recognized Israel as a Jewish state, saying that focusing on issue of 1967 borders was missing the point.

Open gallery view Prime Minister Benjamin Netanyahu is seen during a news conference at his Jerusalem office May 18, 2011. Credit: Reuters

Netanyahu firmly rejected Obama's call for a peace deal between Israel and the Palestinians based on 1967 borders in statements on Thursday and Friday, saying such territorial lines are "indefensible" in light of the current demographic and security reality.

The official acknowledged that the U.S. president expressed frustration over the way the peace process developed, saying Obama has presented his vision as a way of getting started, and a way to avoid in September a repeat of the situation that happened in February, in which the UN Security Council voted on the condemnation of settlements and the U.S. vetoed the resolution.

"This time we might end up at the General Assembly with 187 countries voting for the recognition of the Palestinian state and two against it," he said, adding "it's bad for Israel and its bad for the United States. Netanyahu's reaction has aggravated the situation and frankly I don't know how he will get down from this tree."

The official clarified that Obama mentioned 1967 borders with territory swaps as a basis for negotiations - not as a final point.

"We don't see Hamas any differently than Israel does," the official said, adding that the U.S. recognizes that it is a terror organization and is wary of the recent Hamas-Fatah reconciliation.

He added, "we cannot exclude an option of negotiation with the Palestinian Authority," pending they accept the Quartet conditions.

When asked about whether the United States feels they still have leverage over Palestinians who have chosen to circumvent negotiations with Israel and turn to the international community, the official responded that the "Palestinians are clearly disappointed, but they should realize that the UN resolution doesn't produce a state," adding "they realize they cannot achieve it on their own, without using the United States' connection with Israel."

The official said that Obama is clear about both the Palestinian and the Israeli responsibility to bring about peace, adding that while Netanyahu's and the Palestinians' reactions to Obama's speech were not surprising, the United States is disappointed.

The official added that it was paramount that the United States expresses where it stands together with its disappointment. The objective, he said, is to present an alternative to unilaterally declaring a Palestinian state, for this will not resolve the conflict.

"President Obama's speech should be seen in its entirety, with 1967 borders and the swap of territories as the starting point for negotiations, not the final outcome," said the official.