Israel is about to make a misjudgement as disastrous – and deadly – as the attack on Gaza. In a few days, it looks as if it could elect Benjamin Netanyahu as prime minister once again.

This is a man calling for the violent re-occupation of Gaza to "liquidate" its elected government. This is a man who says he will "naturally grow" the West Bank settlements. This is a man who says he will "never" negotiate over Jerusalem, or the Golan Heights, or control of the West Bank water supply.

This is a man who says establishing a Palestinian state would leave Israel with, "an existential threat and a public relations nightmare reminiscent of 1938 Czechoslovakia". This is a man who Yitzhak Rabin's widow said helped create a climate of hate that led to his murder.

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The political beneficiaries of Operation Cast Lead have been Israel's hard-right. The opinion poll numbers have surged for Netanyahu's Likud and for the even more extreme Avigdor Lieberman. They say the only problem with the 23-day bombing of Gaza – killing 410 children, and hugely strengthening support for Hamas – is that it did not go far enough. The world urgently needs to look at these individuals – and ask how this came to pass.

The key to understanding Netanyahu lies with his father, Benzion. He is a distinguished scholar of medieval history who believes the world is eternally and ineradicably riddled with genocidal anti-Semitism. When he arrived in British Mandate Palestine, he declared that the majority of Jews there were naïve and idealistic. They had to immediately seize the entire Biblical land of Israel – taking all of the West Bank and stretching right into present-day Jordan. There could be no compromise, ever, with the Arabs, who only understand force. The man he calls his mentor, Abba Ahimeir, described himself proudly as "a fascist".

Today, Benzion's son routinely compares dealing with the Palestinians to dealing with the Nazis. He can only understand their anger as a resurfacing of Europe's irrational, murderous hate. He insists they have no right to a share of the land because they "stole" it – in 636AD. Accordingly, Netanyahu rubbishes every peace initiative offered by Israel. His reaction to Yitzhak Rabin's decision to sign the mild and moderate Oslo accords with Yasser Arafat reveals the depth of his opposition to compromise. He warmly addressed crowds that chanted "Rabin is a Nazi" and "through blood and fire, Rabin shall expire". He called the former prime minister "a traitor", shortly before Rabin was murdered by a Jewish fundamentalist who agreed.

The other person who has surged ahead in the polls – and looks likely to be Netanyahu's coalition partner – is Avigdor Lieberman, a Russian ex-nightclub bouncer who says the model for dealing with the Palestinians should be Vladimir Putin's 1990s bombardment of Chechnya, which caused the death of a third of the entire population. He wants the political parties elected by Israeli Arabs to be criminalised, snapping that they should be dealt with "like Hamas".

Perhaps even more depressing than their rise is the flat and flat-lining response form the other parties. Both Kadima and Labour militantly defend the blockade and bombing of Gaza, not least because their leaders – Tzipi Livni and Ehud Barak – led the charge in Cabinet. Even Barak has picked up the comparison to Putin and started approvingly quoting the new Tsar of Russia. The brave pro-peace parties like Meeretz are shunted far to the margins of the debate.

How did this happen? It is essential to remember that the Israelis didn't end up in the Middle East out of a wicked desire to colonise and kill, as some people now gleefully claim. They are there because they were fleeing genocidal Jew-hatred. That doesn't justify a single crime against a single Palestinian – but if we forget this, and the unimaginably vast trauma that lies behind it, we cannot understand what is happening now.

Over the past few months, I keep returning to an extraordinary essay written by the great Israel novelist Amos Oz in 1982. The Likud Prime Minister Menachem Begin had compared the Palestinian leadership to Adolf Hitler, so Oz wrote: "You display an urge to resurrect Hitler from the dead so you may kill him over and over again each day... Like many Jews, I feel sorry I didn't kill Hitler with my bare hands. But there is not, and there never will be, any healing for the open wound. Tens of thousands of dead Arabs will not heal that wound. Because, Mr Begin, Adolf Hitler is dead. He is not hiding in Nabatiyah, in Sidon, or in Beirut. He is dead and burned to ashes."

Israeli society consists, Oz says, of "a bunch of half-hysterical refugees and survivors". The 2,000-year trauma of the blood libel, the Inquisition, the pogroms, Auschwitz and Chelmno and the Gulag Archipelago, have produced a distorted vision, where every shriek of pain directed at Israel can sound like the rumble beginning in the massed crowds at Nuremberg.

This means that Israel is missing opportunities for peace. Even much of Hamas – an Islamist party I passionately oppose – is amenable to a long ceasefire along the 1967 borders. That isn't my opinion; it is the view of Yuval Diskin, the current head of the Israeli security service Shin Bet. He told the Israeli Cabinet before the bombing of Gaza that Hamas would restore the ceasefire if Israel would only end the blockade of the Strip and declare a ceasefire on the West Bank. Instead, they bombed, and the offer died.

The former head of Mossad, Ephraim Halevy, says that Hamas, "will have to adopt a path that could lead them far from their original goals" if only Israel will begin the path of compromise. This would drain support for rejectionists such as Osama Bin Laden and Mahmoud Ahmadinejad, and make it easier to build international coalitions.

Instead, too many Israelis – imprisoned by their history – seem determined to choose the opposite path: of Netanyahu and Lieberman and ramming an endless alienating boot on to the throat of the Palestinians. It doesn't have to be like this. We can only say to them with Amos Oz, as urgently as we can: Adolf Hitler is not hiding in Gaza City, or Beit Hanoun, or Hebron. Adolf Hitler is dead.

j.hari@independent.co.uk