Only days after they were groaning with fury at the Israeli lobby's success in hounding the outspoken Charles Freeman away from his proposed intelligence job for President Obama, the Arabs now have to contend with an Israeli Foreign Minister whose – let us speak frankly – racist comments about Palestinian loyalty tests have brought into the new Netanyahu cabinet one of the most unpleasant politicians in the Middle East.

The Iraqis produced the hateful Saddam, the Iranians created the crackpot Ahmadinejad – for reasons of sanity, I leave out the weird ruler of Libya – and now the Israelis have exalted a man, Avigdor Lieberman, who out-Sharons even Ariel Sharon.

A few Palestinians expressed their cruel delight that at last the West will see the "true face" of Israel. I've heard that one before – when Sharon became prime minister – and the usual nonsense will be trotted out that only a "hard-line extremist" can make the compromises necessary for a deal with the Palestinians.

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This kind of self-delusion is a Middle East disease. The fact is that the Israeli Prime Minister-to-be has made it perfectly clear there will be no two-state solution; and he has planted a tree on Golan to show the Syrians they will not get it back. And now he's brought into the cabinet a man who sees even the Arabs of Israel as second-class citizens.

Lieberman's first visit to Washington will be a gem. AIPAC – posing as an Israeli lobby when in fact it works for the Likudists – will fight for him and Lady Hillary will have to greet him warmly at the State Department. Who knows, he might even suggest to her that she imposes a loyalty test for American minorities as well – which would mean demanding an oath of faithfulness from Barack himself. The horizon goes on forever.

In Egypt, Avigdor Lieberman will have a tough time. Hosni Mubarak can be a soft touch for the Americans but it was Lieberman who, complaining that the Egyptian President should visit Israel or "go to hell", deeply offended a man who has taken great risks in maintaining his country's peace with the Israeli state.

Egyptians have been outraged to read in their newspapers that Lieberman has talked of drowning Palestinians in the Dead Sea or executing Israeli Palestinians who talked to Hamas. Last night, a supporter of Lieberman appeared on Al Jazeera television to describe Hamas as "an anti-Semitic, barbarous organisation" – even though Israeli army officers spoke openly with this supposedly "barbarous" group both before and after the Oslo agreement.

But the growth of such an extremist administration in Israel and the hopeless response of the Obama administration to the so-called supporters of Israel who destroyed Freeman's career, can only be dangerous news for the Middle East. The Jeddah-based Arab News called the Freeman disaster "a grave defeat for US foreign policy". But while uttering all the usual platitudes, the Arab press has been playing up the pusillanimous remarks of US press secretary Robert Gibbs when asked why Obama was "standing mute" in the Freeman affair. "I've watched with great interest how people perceive different things about our policy and during the campaign about whether we were too close to one group or too close to the other. So I don't give a lot of thought to those." Asked for "straight answers", Gibbs said: "I gave you as straight a one as I can get."

This was almost as funny as The New York Times when it attempted last week to explain why Lady Hillary was frightened of offending the Israelis during the formation of the Netanyahu government when she described the destruction of 1,000 Palestinian homes as "unhelpful".

Her caution in the Middle East, it explained, was "a reflection of the treacherous landscape in the Middle East, where a misplaced phrase can ruffle feathers among constituencies back home". You bet it can – and when Mr Lieberman comes to town, we'll see who those feathers belong to.

Their owners would do well, however, to dwell on the incendiary language of Avigdor Lieberman. He speaks like a Russian nationalist rather than the secular Israeli he claims to be.

I covered the bloodbath of Bosnia in the early Nineties and I can identify Lieberman's language – of executions, of drownings, of hell and loyalty oaths – with the language of Messrs Mladic and Karadzic and Milosevic.

Lady Hillary and her boss should pull out a few books on the war in ex-Yugoslavia if they want to understand who they are now dealing with. "Unhelpful" will not be the appropriate response.