8th May 08 - Donald Macintyre, The Independent (UK)

It was created from the ashes of the Holocaust, and grew into one of the most confident (and controversial) nations in history. Today, as Israel turns 60, its people's hopes for a peaceful future are as delicately poised as ever.

You get the clearest sense of it in Tel Aviv. Swinging in on the Ayalon highway past the 50-floor Azrieli towers, joining the entrepreneurs in their open-necked shirts and jeans tapping at their laptops at a café off the Rothschild Boulevard, lunching among the families and fashionistas at the beachside Manta Ray, or wandering through the elegantly renovated lanes of Neve Tzedek, where Jews in the 1880s first started spreading north along the coast from Jaffa, the still-mixed neighbouring Arab port town that secular, hedonistic, Tel Aviv grew out of, you quickly begin to see how much Israel has achieved in the last 60 years.

And certainly there will be much for the country to celebrate on Independence Day today, the holiday that begins a week of high-profile anniversary events, reaching their climax with President George W Bush's traffic-stopping, TV network clogging, second visit of the year next Tuesday. It was here, on a Friday afternoon in mid-May in the main hall of the Tel Aviv Museum, that David Ben-Gurion, with the other signatories, to the accompaniment of the Palestine Symphony Orchestra, put their names to the Declaration of Independence which marked the end of the British mandate and the beginning of the state of Israel. Since then, it has built a formidably strong economy, world-class science and medicine, some of the world's most advanced agriculture – making, in the words of the old Zionist mantra "the desert bloom" – and revived, to an astonishing extent admired even by the state's most strident critics, the Hebrew language. It absorbed with remarkable success one million Russian-speaking immigrants after the fall of the Soviet Union; it has a vibrant cultural scene, a vigorous and often highly critical press, and, with all its faults, a viable parliamentary democracy.

Yet amid the celebrations – from a Jewish astronaut sending greetings from space to Israel, to an attempt to set a world record for the number of people singing the national anthem, Hatikva – Israel approaches its 60th birthday with some ambivalence. More, perhaps, than it did its 50th – and more even that it expected to, a few weeks ago. Having survived an excoriating inquiry into a war in which, unlike the many others Israel has fought from 1948 on, it failed to be victorious, Prime Minister Ehud Olmert might have expected to bask in the attentions of world leaders over the next week with a relative sense of political security. Instead, he finds himself the focus of a new police investigation over corruption allegations. Some commentators are dancing around a temporary gagging order to imply that it may be the most serious yet, triggering fresh speculation about how long he can last in office.

But the sense of uncertainty has its roots in something more fundamental than that. Olmert is not, to coin a phrase often used by both Jews and Arabs in the Middle East, a prophet. And even if he were, he would probably not be believed by an increasingly cynical public. But however long he lasts, one of his abiding legacies may well be the stark observation that the state would be "finished" if prospects of a two-state solution collapsed and Israel was to remain in control of the occupied Palestinian territories. His argument, more familiar in the past from Palestinians themselves and the Israeli left, was that the demise would trigger a demand from Palestinians for equal votes in all the territory now controlled by Israel, a demand that the international community could not long ignore and would mean the end of the Jewish state. If Olmert is to be believed, therefore, at a time when it is natural to think ahead to the next 60 years, the fate of the state itself may yet be nearing a decisive turning point.

Certainly, it is a sobering thought that, 60 years after Ben Gurion signed the declaration, Israel remains a state without agreed or defined borders. The declaration itself came in the midst of a bloody war – on both sides – of course. Or, rather, two wars, the first between the Jews and Arabs of the Holy Land, and the second between Israeli forces and the Arab national armies. In the non-Jewish calendar, 15 May is the actual date – the day after Ben-Gurion signed the declaration – of the end of the British mandate, and it is that which will be marked by most Palestinians as the anniversary of the Nakba, or disaster which saw 700,000 forced out or flee their homes in what is now Israel. A month earlier, 250 mostly non-combatant Arabs, including many women and children in the mainly peaceful village of Deir Yassin on the outskirts of Jerusalem had been murdered in a massacre carried out jointly by the Etzel and Lehi militias. It is a reminder of the savagery of warfare on both sides that the counter killings in the wake of Deir Yassin took the lives, six days later, of 77 Jewish doctors, nurses and patients travelling in armoured buses to the Hadassah Hospital in Mount Scopus. But that did not diminish the role of the Deir Yassin massacre as having "probably the single most lasting effect of any single event of the war in precipitating the flight of Arabs from Palestine". These are the words of Benny Morris, who said the massacre was accompanied by cases of "mutilation and rape" and was one of the first Israeli (as opposed to Arab) historians – 20 years ago – to challenge the myth that Palestinians left merely because they were ordered to do so by Arab leaders. Morris documented expulsions by Jewish military forces in many parts of the country.

Ben-Gurion's Declaration of Independence had not specified the borders of the new Israel. And, as the historian Avi Shlaim has pointed out, the March 1948 "Plan D" of the Haganah – the mainstream military under Ben-Gurion which became the Israel Defence Force – was to secure all the areas allocated to Israel by the UN partition plan as well as Jewish settlements outside them, along with the corridors leading to them. Shlaim says that while the wording was vague, its objective "was to clear the interior of the country of hostile and potentially hostile Arab elements and in this sense it provided a warrant for expelling civilians". Either way, by the time of the armistice in 1949, Israel had greatly expanded what it had been given under the partition plan. West Jerusalem, Ramle, Lod, Beer Sheva and what had been intended as the isolated Arab enclave of Jaffa, were all among the urban centres now firmly in Israel's hands.

It is logical, in retrospect, to see this as the price paid by the Palestinians and Arab leaders for their rejection of the UN November 1947 partition plan – easily the best offer they would get. But in any case, it was the 1949 Armistice lines that remained the de facto borders until the Six Day War in June 1967, when Israel's victory left it in control of the West Bank and Gaza. And 60 years later it is those same lines – more often known as the 1967 borders or the green line – and precisely how near them would be the borders of a future Palestinian state, that are at the heart of discussions between Olmert and the Palestinian President, Mahmoud Abbas.

It is a truism that the contours of an agreement that Abbas could accept aren't that difficult to define. The various freelance joint Israeli-Palestinian variations on the 2000 Clinton parameters have them all – maybe a one-to-one land swap to compensate for settlement blocs on the Palestinian side of the green line that would stay in Israeli hands, and the division of Jerusalem with the Arab Eastern sector as the Palestinian capital. Even on the one issue that still flows directly from the war of 1948 – and remains the most neuralgic for many Israelis – that of the right of return for the families of refugees, some form of compromise, built on serious international compensation, some third-country resettlement and some Israeli recognition of what happened in 1948, is not beyond the bounds of possibility. Earlier this week in the Balata refugee camp in Nablus, long seen as a hot-bed of West Bank militancy, memories of 1948 seemed as fresh as ever, the rhetoric as resounding. A frightened Ahmad Khamis was just 12 when he put his younger brother and sister on his bicycle after the mortars started to hit his village of Kfar Ana. He pedalled furiously to the – very temporary – safety of Lod, while his parents feverishly gathered blankets and food to follow them, hours later, from a home they would never enter again. Khamis, now a retired contractor, began with the standard reply. "We want our return," he insisted, "I may not see it, but my grandchildren will."

Yet by the end of the conversation, Khamis was agreeing that if there was a real and contiguous Palestinian state – "There are 20 checkpoints between here and Ramallah," he claimed – with easy access to Jordan over the Allenby Bridge, then things would be different. His brother, he admitted, now in a refugee camp in Jordan, had told him he would accept compensation.

Khamis's problem, like that of many Palestinians – and, for that matter, many Israelis – is precisely that he doesn't see a Palestinian state happening. And certainly the difficulties with the current negotiations are all too easy to enumerate. The first is the idea – in some ways reminiscent of the failed Oslo agreement – that any deal between Olmert and Abbas, if by some miracle there is one, would be a "shelf agreement" implemented only when Israel, and presumably the international community, judges that a Palestinian Authority can guarantee Israeli security. It would be difficult enough for Abbas to agree a compromise on the right of return in a deal that immediately ushered in a Palestinian state; much more so if there is no state nearer than on some distant horizon. Secondly, there are Olmert's internal political problems with an Israeli right that either sees no urgency for a negotiated solution or doesn't believe in one. Thirdly, there is a quite widespread international consensus that, while the Palestinian Prime Minister, Salam Fayad, has made some strides towards managing Ramallah's money and slowly improving security, as envisaged in Annapolis, Israel has taken few of the also envisaged parallel steps to free Palestinian movement – Khamis's checkpoints – and improve the economy, even in the West Bank. Tony Blair, as the international Middle East envoy, correctly believes that a negotiating process can only be credible to deeply sceptical Palestinians if there are tangible improvements on the ground. This is hardly surprising, given that the settlements, the roads that serve them and the military presence that protects them (covering some 40 percent of the West Bank and far more deeply embedded than anything that existed in Gaza before disengagement in 2005), make it increasingly difficult to imagine to what a viable Palestinian state would now look like. Blair has suggested several modest steps to Israel, including the removal of some (real) checkpoints within the West Bank and letting American-trained Palestinian forces in Jenin take over security from Israel. It remains to be seen whether he will succeed before President Bush arrives next week.

And finally, there is the total exclusion and continued Israeli international isolation of an increasingly devastated and impoverished Gaza and its de facto rulers, Hamas. You don't have to be an admirer of Hamas – much less of its murderous attacks on Israeli civilians over the past decade – to see, first, that it is not simply going to disappear and secondly, as diplomats increasingly agree in semi-public, the isolation strategy has simply not worked. Last week in Gaza, a prominent businessman told me that he had to lay off all but 15 of his previous 200-strong workforce because of the bar on imports and exports. He estimated that perhaps 80 per cent had since joined Hamas-affiliated organisations – ranging from its internal police force to the militant Izzedine al Qassam brigades. If anything, the blockade has cheapened the price in wages Hamas has to pay for its recruits.

It is common to see obstacles in the way of a two-state solution as simply the Palestinians' problem. But supposing it is Israel's problem, too? What, for example, if Olmert is right and Israel faces a long-term existential threat that cannot be dealt with by military means, but only at the negotiating table with a genuine, rather than a virtual, offer? And what if the crippling paralysis of a Bush-led international community is now actively helping the powerful forces on both sides, Israeli and Palestinian, that do not want a negotiated solution to advance their cause?

For the paradox is that, bleak as most Israelis and Palestinians believe the prospect of peace to be with its neighbours, opportunities for hope certainly exist. Talks with Syria are being openly advocated by some in the Israeli security establishment; a ceasefire with Hamas, which might turn a vicious circle in Gaza into a virtuous one, appears to be on offer. But Israel continues to hesitate over Syria and to contemplate a big and bloody incursion, or incursions, into Gaza – with no-one-knows how many more Palestinian civilian casualties – that might just well take such a ceasefire off the table.

There are, of course, risks in what former foreign minister Shlomo Ben-Ami described this week as "the radical change in strategy" Israel now needs as an alternative "to the traditional tendency of its leaders to make decisions only on the basis of the worst scenario". But if Israel makes no such change, the risks may be even greater.

Citing Anwar Sadat's insistence that Jimmy Carter broker an Egyptian peace agreement, and the role of the first intifada in prompting Israel to move towards the Oslo process, Ben-Ami pointed out that historic moves towards peace had actually been as a result of Arab actions rather than Israeli ones.

"The Jews did not survive all the horrors of the Holocaust just to entrench themselves in the bastions of their beliefs and to remain in the right but stuck," he concluded. "They survived in order to create an answer to what appeared for too long to be an insoluble problem: how to make the Jewish state legitimate in the eyes of those who regard themselves as its victims.

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