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Netanyahu says Israel won't budge on building in East Jerusalem

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The tough words came hours before two Israeli solders and two Palestinians were killed on the Israel-Gaza border. An Israeli military spokeswoman said the deaths were the result of an exchange of fire between a unit of soldiers that had entered Gaza after detecting Palestinian militants laying a roadside bomb.

Despite Netanyahu's defiant public stance this week, many experts believe that US pressure will force the prime minister to bend toward the Obama administration and away from right-wing coalition partners. In that case, Netanyahu would become reliant on the center-left Kadima party, and political rival Tzippi Livni.

But Netanyahu aide Tzvi Hauser told Israel television stations that he can find "golden path'' to satisfy the US while remaining faithful to his current government. Unnamed sources from the prime minister's office asserted the pressure amounted to meddling in Israel's domestic politics, because it could force a new election.

Indeed, it is a commonly held view that a compromise between Obama and the interests of hard-line politicians like Avigdor Lieberman is impossible to strike.

"Since Netanyahu cannot reconcile the most extreme elements of his government with the American positions on the peace process,'' says Scott Lasensky, a fellow at the US Institute for Peace, a government-funded nonpartisan think tank, "he is facing a fundamental choice – and if history is any guide, the Israeli public prefers strong relations with Washington than settlement building in Arab areas.''

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