Given the Israeli consensus on Jerusalem, there was no way Mr Netanyahu could have avoided rubbing that wound again in his speech on Monday to the annual conference of the American Israel Public Affairs Committee (AIPAC), the powerful pro-Israel lobby group.

 

He told the thousands of delegates: “The Jewish people were building Jerusalem 3,000 years ago and the Jewish people are building Jerusalem today. Jerusalem is not a settlement. It is our capital.”

 

Citing his own policy as inseparable from all previous Israeli governments, he added: “Everyone knows that these neighbourhoods will be part of Israel in any peace settlement. Therefore, building them in no way precludes the possibility of a two-state solution.”

 

Mr Netanyahu’s speech appeared consistent with the new approach agreed by both sides to end this particular debacle. According to the US media, a policy of “Don’t ask and don’t tell” has been adopted to avoid making East Jerusalem an insurmountable obstacle to negotiations.

 

It will be telling how the US administration responds to the latest approval by Israeli planning authorities of a housing project at the Shepherd’s Hotel in East Jerusalem – this time in the even more controversial area of Sheikh Jarrah, a Palestinian community slowly being taken over by Jewish settlers backed by the Israeli courts.

 

The White House has eased its stance chiefly because Mr Netanyahu has climbed down on two issues of even greater importance to the administration.

 

First, he has agreed to make a “significant gesture” to Mahmoud Abbas, the Palestinian president, probably in the form of a prisoner release. That is the carrot needed to bring Mr Abbas to the peace talks overseen by George Mitchell, the US special peace envoy.

 

And second, Mr Netanyahu has conceded that Israel will discuss the “core issues” of the conflict – borders, Jerusalem and the Palestinian refugees – ensuring that the negotiations are substantive rather than formal, as he had intended.

 

Those concessions – if Mr Netanyahu delivers on them – should be enough to break up his far-right coalition, a prospect the White House craves. The US administration wants Tzipi Livni, the leader of the centrist opposition, to join Mr Netanyahu in a new, “peacemaking coalition”.

 

If Mr Netanyahu could wriggle out of this bind, he would do so. But his ace in the hole – harnessing the might of AIPAC and its legions in Congress to back him against the White House – looks to have been disarmed.

 

Comments last week by Gen David Petraeus, the head of the US Central Command, linked Israel’s intransigence towards the Palestinians to the spread of a hatred that endangers US troops in the Middle East. That left the AIPAC hordes with little option but to swallow their and Mr Netanyahu’s pride, lest they be accused of dual loyalties.

 

In the words of Uri Avnery, a former Israeli legislator: “This is only a shot across the bow, a warning shot fired by a warship in order to induce another vessel to follow its instructions. The warning is clear.”

 

And the warning is that Mr Netanyahu must come to the negotiating table to help to establish a Palestinian state whatever the consequences for his coalition.

 

But it would be unwise to assume that the crisis over settlement building in East Jerusalem indicates that the Obama administration plans to get any tougher with Israel on the form of such statehood than its predecessors.

 

Ms Livni, unlike Mr Netanyahu, may wish to find a solution to the conflict – or impose one – but her terms would be far from generous. The White House knows that she, too, is an ardent advocate of settlements in East Jerusalem. When she broke her silence on the crisis last week, it was to emphasise that, by “acting stupidly” in stoking a row with the US, Mr Netanyahu had risked “weakening” Israel’s hold on Jerusalem

 

Instead, the signs are that Barack Obama could be just as ready to accommodate the Israeli consensus on East Jerusalem as the previous Bush administration was in backing Israel’s position on keeping the overwhelming majority of West Bank settlers in their homes on occupied Palestinian land.

 

Shimon Peres, the Israeli president who is much favoured in Washington, has outlined a “compromise” to placate the Americans. It would involve a peace deal in which Israel keeps the large swaths of East Jerusalem already settled by Jews, while the Palestinians would be entitled to the ghettos left behind after four decades of illegal Israeli building.

 

In her own AIPAC speech, Hillary Clinton, the US secretary of state, hinted that such a solution might yet be acceptable to the administration. The recent US condemnation of settlement building, she said, was not “a judgment on the final status of Jerusalem, which is an issue to be settled at the negotiating table. This is about getting to the table, creating and protecting an atmosphere of trust around it -- and staying there until the job is finally done.”

 

Having lost patience with Mr Netanyahu’s lip service to Palestinian statehood, the White House appears finally to have decided its credibility in the Middle East depends on dragging Israel -- kicking and screaming, if needs be -- to the negotiating table.

 

Mr Obama may hope that the outcome of such a process will make US troops safer in Iraq and strengthen his hand in the stand-off with Iran. But it remains doubtful that the US actually has the stomach to extract from Israel the concessions needed to create that elusive entity referred to as a viable Palestinian state.