Vice President Joe Biden's visit to Israel last week was rightly hailed as a catastrophe—but not because of settlements. After a tense year in which Washington had failed to stop Prime Minister Benyamin "Bibi"
Netanyahu from settling more occupied land, Biden had come to shore up
the relationship. Instead, officials in Netanyahu's government caught
both men off guard by announcing plans to build more in contested East
Jerusalem. True, that was a snafu. But the real disaster was what it
may cost Israel. Biden had come to offer not just friendship, but
support (and protection) against Iran—Israel's greatest bogeyman—in
exchange for a few concessions from Netanyahu. Instead, he got a finger
in the eye.

When President Barack Obama and Netanyahu took office last year, consensus opinion expected a confrontation between the United States and Israel. It was almost a no-brainer—America was moving left as
Israel was moving right. Obama's grand design for a new, peaceful, and
pro-American Middle East (featuring a new Palestinian state) stood in
stark contrast to Netanyahu's long-held support for Israel's control of
the West Bank and East Jerusalem. But Netanyahu thought that if he
tacked between his rightwing coalition—committed to expanding
settlements in the West Bank and moving more Jews into East
Jerusalem—and Obama's desire for peace talks, he could keep U.S.
support against Iran and even start from scratch with the Palestinians.
And until last week, Netanyahu seemed to pulling it off: he got
indirect talks with the Palestinians in return for a limited and
temporary settlement freeze that excludes East Jerusalem. His coalition
survived intact. And his public popularity skyrocketed to 50 percent in
February—which Israelis knew only in the Ariel Sharon period (while
Obama's approval ratings plummeted).

Then Biden came to town. On the face of it, this was just about assuring Israelis, directly and in their own country, about America's love and support. It
seemed like good politics in a tough election season back home, and
Biden was a natural choice as messenger: alone in the high echelon of
the Obama administration, the veep—an old-line Zionist—has come to
consider "Bibi" as a close personal friend over a three-decade
acquaintance. If anybody could reach out to Netanyahu, it was the
former senator from Delaware.

Biden's trip had a deeper motive, though. He was there to offer Israel a deal: we'll support you on Iran—keeping "all options on the table"—in return for
Israeli flexibility in the West Bank. Obama would continue flogging
sanctions relentlessly (he had made some of his own concessions to
obtain sanctions support from allies) and refuse to discount the
possibility of force. Or, in Biden's more diplomatic lingo during a
speech at Tel Aviv University: "We are determined to keep the pressure
on Iran so that it will change its course. And as we do, we will also
be seeking to improve relations between the Israelis and Palestinians.
They are connected indirectly, but there is a relationship."

The settlements-for-Natanz idea (a reference to Iran's uranium-enrichment facility) has been around for a while. And it makes good sense: if
Israel views Iran's would-be nukes as the gravest existential threat
ever, and if Israel needs American support in confronting the threat,
then it should give America something in return. That logic is how
Netanyahu got his right-wing political partners to agree on a partial
settlement freeze in November—against their beliefs. The freeze
coincided with an upgrade in American-Israeli security cooperation.
Biden simply made the linkage more explicit.

This is not a new idea. Time and again, Israel has traded peace concessions for security support. It started in 1949, when President Truman
demanded a halt of the Israeli invasion of Egypt, in exchange for the
armistice talks, which embedded Israel into the Middle East. It moved
on with Israel's Sinai withdrawal—after the 1956 war—in return for
security guarantees from the Eisenhower administration. In 1974, Israel
disengaged from Egypt and Syria in return for the American resupply
airlift during the 1973 Yom Kippur War. The most recent agreement began
after the first Gulf War in 1991, when Israel agreed at the Madrid
Peace Conference to a comprehensive land-for-peace process in return
for American deployment of antimissile batteries during the war. The
idea of foregoing the settlements for protection from Iran—as Biden was
suggesting—is just an extension of that understanding.

But with the settlement announcement timed to embarrass Biden, Israel seemed to be casting aside that deal. For Obama and his inner circle, it brought back
memories of Bibi's first term, during the Clinton years, when he
appeared as an untrustworthy spoiler of peace, despite commitments from
his predecessor. So the president decided on a showdown. As Biden's
plane left the Israeli airspace, Washington launched a multichannel
diplomatic offensive: Secretary of State Hillary Clinton chewed out
Netanyahu by phone and made the conversation public so he couldn't
brush it aside, and top aides like David Axelrod flooded the Sunday
talk shows to decry the "affront." The idea was to shame Israel into
accepting Biden's bargain.

Thing is, it's not working. Netanyahu apologized for the "bad timing" of the housing announcement, but he vowed to keep building in East Jerusalem. Knowing
that concessions in the disputed city could bring down the Israeli
coalition, Obama was asking Netanyahu to choose between American
support or his right-wing political partners.

And Netanyahu turned right. He rallied American Jewish groups against the administration's "dressing down," anticipating a warm welcome at the
AIPAC annual conference next week in Washington. His ambassador in
Washington called the crisis "the worst in American-Israeli relations
since 1975," when then–secretary of state Henry Kissinger announced a
"reassessment" of the relationship. And even Netanyahu's key coalition
member from the center-left, Defense Minister Ehud Barak, backed the
prime minister, securing the prime minister's political position at
home.

So now it's down to a high-stakes test of wills: will Netanyahu, following his show of partisanship, concede on settlement building—or will Obama back down under the pro-Israel-lobby
pressure? Isolating Israel could push it to attack Iran's nuclear
plants. But caving to Israel could strengthen anti-American feelings
throughout the Middle East. It's not clear who will blink first, but
it's obvious that, where once there was an understanding, today there
is only a contest.