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US admits defeat on Israeli settlement freeze. Can it still broker peace?

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"The Palestinians are moving ahead with the creation of the state, and an important part of the world is collaborating with them,'' says Gershon Baskin, co-director of the Israel Palestine Center for Research and Information in Jerusalem. "If the assumption is that the Israelis will oppose unilateralism, there is a danger of a breakdown, which calls for US intervention of some kind or another. The US cannot allow this process to spin out of control.''

Palestinians skeptical of US clout now

The Obama administration has been unable to bring the sides back to negotiations since Israel ended a 10-month moratorium on settlement housing starts in late September, prompting the Palestinians to suspend talks.

US-Israel talks on a three-month extension of the moratorium seemed close to conclusion several weeks ago, but the sides haggled over a package of incentives including $3 billion in military hardware to help Prime Minister Netanyahu sell it to his coalition.

The official declaration yesterday that no such moratorium would be forthcoming has left the Palestinians, which have yet to respond publicly, mulling their options. A prime consideration, suggested a top aide to Mr. Abbas, was whether the US could deliver meaningful results for the Palestinian Authority.

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