Israel deems the holy city as its "indivisible capital," while the Palestinians want to see the east part of the city to be the capital of their future state.

Last June, Netanyahu spoke of the need to establish a Palestinian state but he also laid down a series of conditions for that to happen, which the Palestinian leadership described as " unacceptable."

The Palestinians maintain that Netanyahu paid lip service to the idea and is in no way serious about peace. They say his actions since his June 14 speech at Bar-Ilan University have not exactly suggested he is interested in advancing the cause of peace.

For its part, the Netanyahu government says it has made numerous concessions and offers and it is the Palestinians who are refusing to budge.

Political change

This stalemate leaves people like Baskin suggesting that unless there is a change in the composition of the Netanyahu coalition government, there is no chance of the peace process advancing before the next scheduled general election in 2013.

"If Netanyahu is going to move forward on the peace front he will have to change his coalition," said Baskin.

Netanyahu came to power on the basis of a stronger vote for the hawkish political right than for the dovish left. His own party did not receive the largest number of seats but he controls a sizeable bloc of lawmakers.

The parties in his ruling coalition, such as the rightist Israel Beiteinu and Shas, are pretty much opposed to territorial compromise, particularly when it comes to Jerusalem.

If Netanyahu wants to remain in office but still please the Americans, argues Baskin, he is going to have to part ways with the likes of Israel Beiteinu and Shas and replace them with the more dovish Kadima, the party that received the most votes in last year's general election.

The ongoing differences between Israel on the one hand and the Palestinians and Americans on the other are "serious challenges," said Jonathan Rynhold, a senior research associate at the Begin Sadat Center for Strategic Studies near Tel Aviv.

But he believes, taking the 2005 Israeli withdrawal from the Gaza Strip as an example, that the country will have a way of pulling through.