US Officials: "We are encouraged by the progress made with Netanyahu ... We hope he does not address the issue of Settlments in his Sunday speech"

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With President Obama's Cairo speech last week, the US began to accelerate its diplomatic activity in the Middle East. Parliamentary elections in Lebanon last Sunday, Presidential elections in Iran tomorrow and a major speech by Israeli PrimeMinister Netanyahu on Sunday have help prompt this new pace. US Special Envoy, George Mitchell has this week already met with Israeli and Palestinian leaders. He will visit Beirut and Damascus, for the first time over the weekend. Meanwhile, the Administration awaits the outcome of the Iranian elections before embarking on its promised outreach to Teheran.

While Israel and some of its supporters in the US were less than pleased with aspects of the President's Cairo speech, especially comments made by US officials in the run up to it, Administration analysts, not to mention the President himself, are pleased with the overall reception it received. Some even go so far as to say that anecdotal evidence suggests it had a positive impact on the results of the Lebanese election, where the pro-Western "March 14" coalition scored a somewhat unexpected victory over the Opposition, which included Hezbollah and was backed by Iran and Syria. ... Mitchell's visit to Israel, however, came in the full glare of publicity surrounding public differences between the Obama Administration and the Netanyahu government on how to proceed in the Arab-Israeli peace process.

Unlike its predecessor, the new Israeli government has not embraced the formula of a"two-state" solution to the Israeli-Palestinian conflict. An even more challenging issue is the question of expansion of Israeli settlements in the West Bank and Jerusalem. While veteran Israeli diplomats see a way of Netanyahu "finessing" the two- state formula, they are more pessimistic about the chances for Israel agreeing to Administration demands for a complete halt to settlement activity.

However, key US officials say that talks between Mitchell and Israeli officials, including the Prime Minister have narrowed the gaps. They are optimistic that a mutually satisfactory formula can be found. In fact, they are encouraged enough by the progress made so far in the talks that they are hoping Netanyahu does not address the issue in his Sunday speech. "We really are not looking for an answer now," says one well-placed Administration insider. Instead, this official and others closely involved in the process are trying to move both sides simultaneously towards compromise. "We have a classic `chicken and egg' situation here," says one key US official. "We need to get the Israelis to agree to a settlement freeze in exchange forgestures from the Arab side.

Meanwhile, the Arabs don't want to move until the Israelis display their bona fides." US officials say they have made it clear to Arab leaders, most recently President Obama in his meeting with Saudi Arabia's King Abdallah, just prior to his Cairo speech, that the US expects significant gestures towards Israel. As one well-placed US official put it, "The President told Abdallah that such things as allowing Israeli airlines commercial overflight rights just wouldn't cut it." Planning, which is still in its early stage, does foresee the likelihood of an international conference, once reciprocal moves are made by Israel on settlements and the Arab states on outreach to the Jewish state. But the bottom line for the Administration is an awareness that the President, in part through his gestures like the Cairo speech, has given the Administration a limited window of opportunity to make significant progress in peacemaking. But as one pragmatic Administration insider said this week, "At the very least, by pushing things forward, we are managing what otherwise could very well be a crisis in the making."

If the Administration has a limited amount of time to make progress in peacemaking between Arabs and Israel, it is under even greater time pressure when it comes to dealing with Iran. US policymakers say the decision was made some time ago not to begin its outreach to Iran until after their Presidential elections. "We know the US is a `lightning rod' in Iranian politics," admitted one Administration policy maker. "So our engagement has been purposely placed on hold." Yet, the Administration from the President on down is acutely aware that on one issue, Iranian nuclear development, time is of the essence. As one top policy maker puts it, "Everything will be on the table but nuclear is the most urgent. We are prepared to patient about everything else but not the nuclear file." The Administration appears convinced that if something is not done to prevent Iran from going down the road towards obtaining a nuclear weapons capability, consequences will be extreme, including the likelihood that Israel will act militarily.

As one highly placed US source put it recently, "Bibi sees himself as a man of destiny. And in this case we believe he sees his destiny as being the one to prevent Iran from obtaining nuclear weapons." The Administration's goal is to preempt this scenario by convincing the Iranians it is in their own interest to eschew nuclear weapons capability. "We want to see Iran reframe its view of the world," says one key policy maker. To that end, the Administration will, over the coming weeks and months, attempt to engage the Iranians, first through multi-lateral settings, then bi-laterally. "This will be a genuine attempt at engagement, no tricks, no traps," says one Administration insider. "It is ourbelief that the Iranians view the US as both the biggest threat and the biggest prize. Engagement is designed to test whether their pragmatic impulse will win over their revolutionary bent." Specifically, the Administration is looking first to gain Iranian agreement to suspend their enrichment program.

Ultimately, however, they would require Iran to prove that it is only seeking civilian, not military application for its nuclear technology. While Administration officials are understandably reluctant to outline exactly the measures they are willing to undertake, should Iran rebuff their overtures, they are clearly prepared to up the ante. As one US official put it recently, "The consequences for non-cooperation must be meaningful. So far, they have not been." Aiding US efforts has been the backing of Saudi Arabia.

One top US official goes so far as to say that it is not the Israelis but the Saudis who now most fear Iran. "The Saudis are now being challenged on two fronts," says this official. First, the age old Persian/Arab rivalry. Now their very legitimacy as the leader of the Sunni moslem world is being challenged by Iran and its Shia allies." US officials say the Saudi concern has reached such a level that they are now willing to de-link progress on the Israeli/Palestinian issue from cooperation with the US in dealing with Iran. And the US, say Administration insiders, will need as much help as it can get from the Saudis. With a strategy that requires cooperation from the international community, Russia and China are, according to US officials, far from being on board. "Both countries, but especially China, with its mercantilist mentality, need to feel the economic weight of Saudi Arabia," says one key US official.