The West Bank and West Jerusalem are under Israeli occupation. International law prohibits settling in occupied territories, yet Israel has been settling Israeli people in these territories for over twenty years.
The settlements are one of he prime causes of Arab hostility to Israel and the US. When Israel was founded, there was the Arab rhetoric of "Drive the Jews into the sea!", so one could appreciate Israel's fear of being overrun by the Arab armies at that time. But over the last thirty years, Arab states have come to accept that the existence of Israel is a fact that's not going to go away, and have indicated their willingness to recognize Israel if it returns to 1967 borders (approximately the borders that were set up by the UN resolution creating the state of Israel). So - if they'd only asked me - I would have told Israel to return to internationally recognized borders, and make peace with their neighbors, in the interests of both Israel and the US. As the US has from time to time suggested - most recently by the Obama administration - and been pointedly ignored. As Israeli lawmaker Eitan Cabel remarked on the most result insult to our country: "Netanyahu decided to spit into Obama's eye, this time from up close. He and his pyromaniac ministers insist on setting the Middle East ablaze."
But it's not the case that there's nothing the US can do in the face of Israeli intransigence. These settlements are subsidized by the Israeli government, and Israel is the largest recipient of US foreign aid. So if Israel, with our aid included in its budget, has the resources to spend on these settlements, we are in effect subsidizing this illegal and counterproductive activity. So - if only they'd asked me - I would have suggested to the US government that we reduce aid to Israel by the amount Israel spends on the settlements. And continue to do the same every year the aid and settlements continue.
[Needless to say, any criticism of Israel is called "anti-semitic". I would hope that I would have inoculated myself against that false charge by having married a Jewish woman. (Who agrees with me about the harm being done to both Israel and this country by the settlements.)]
Update March 13, 2011
Some in Washington seem to believe that the drive toward more democracy in Arab countries will result in a more pro-Israeli attitude in these countries. For instance, President Obama is reported to have said: "All the forces that we're seeing at work in Egypt are forces that naturally should be aligned with us, should be aligned with Israel - if we make good decisions now and we understand sort of the sweep of history." If he believes that, I fear he is grossly mistaken, as this commentator relates - unless by "good decisions" he means putting real pressure on the Israelis to withdraw from all illegal settlements.
Update May, 2011
And indeed, a new Pew poll shows that a majority of Egyptians want to annul the peace treaty with Israel.
Update June 3, 2011
The former head of Israeli intelligence, Meir Dagan is calling for the acceptance of the 2002 Arab proposals for recognition of Israel when it returns to the 1967 borders.