World attention remains fixed on the Israeli-Palestinian conflict but a distinct, albeit related, conflict smoulders within Israel itself. It might be no less perilous. Jewish-Arab domestic relations have deteriorated steadily for a decade. More and more, the Jewish majority views the Palestinian minority as subversive, disloyal and – due to its birth rates – a demographic threat. Palestinian citizens are politically marginalised, economically underprivileged, ever more unwilling to accept systemic inequality and ever more willing to confront the status quo. Interaction with the Israeli-Palestinian conflict further complicates matters as negotiations bump against a core issue – whether Palestinians will recognise Israel’s Jewish character – that further inflames communal relations. There is no easy or quick fix. In the near term, Israel should take practical steps to defuse tensions with its Arab minority and integrate it into the civic order. In the longer run, the challenge to Israeli Jews and the Palestinian national movement is to come to terms with the most basic questions: what is the character of the state of Israel, and what rights should its Arab citizens enjoy?

For over six decades, Israel’s Palestinian citizens have had a unique experience: they are a Palestinian national minority in a Jewish state locked in conflict with its Arab neighbours but they also constitute an Israeli minority enjoying the benefits of citizenship in a state that prizes democracy. This has translated into ambivalent relations with both the state of Israel and Palestinians in the West Bank, Gaza and beyond. They feel solidarity with their brethren elsewhere, yet many Arabs study in Israeli universities, work side-by-side with Jews and speak Hebrew fluently – a degree of familiarity that has only made the discrimination and alienation from which they suffer seem more acute and demands for equality more insistent.

Since 2000, a series of dramatic events have both poisoned Jewish-Arab relations in Israel and reinvigorated its Palestinian minority. The collapse of the peace process and ensuing intifada harmed Israel’s relations with not only Palestinians in the occupied territories but also its own Palestinian minority. As Palestinians in Israel organised rallies in solidarity with Gazans and West Bankers, Israeli Jews grew ever more suspicious of their loyalty. Palestinian citizens’ trust in the state plummeted after Israeli security forces killed thirteen of their own during protests in October 2000. A rapid succession of confrontations – the 2006 war in Lebanon; 2008-2009 Gaza war; and 2010 bloody Israeli raid on the aid flotilla to Gaza – further deepened mistrust, galvanising the perception among Israeli Jews that Palestinian citizens had embraced their sworn adversaries. Among Arabs, it reinforced the sense that they had no place in Israel. Several have been arrested on charges of abetting terrorist activity. Meanwhile, the crisis of the Palestinian national movement – divided, adrift and in search of a new strategy – has opened up political space for Israel’s Arab minority.

As a consequence, Palestinian citizens began to look outside – to surrounding Arab states and the wider international community – for moral sustenance and political leverage. They have come to emphasise their Palestinian identity and increasingly dissociate themselves from formal Israeli politics. The result has been steadily declining Arab turnout for national elections and, among those who still bother to vote, a shift from Jewish Zionist to Arab parties. Palestinians invest more energy in political activity taking place beyond the reach of official institutions. Unsurprisingly, Sheikh Raed Salah – the leader of the northern branch of the Islamic Movement in Israel, which refuses to engage with the country’s political institutions – has become the highest-profile Arab politician.

Yet Palestinian citizens’ conflicting experiences has meant that such reactions go hand-in-hand with others: continual demands for achieving their rights within Israel; persistent criticism of Israel’s democratic shortcomings; and the absence of any visible interest or willingness to relocate to an eventual Palestinian state. They undoubtedly feel deeply Palestinian. But they also take their Israeli citizenship seriously.

Simultaneous Arab marginalisation and revitalisation also has manifested itself in initial efforts by its leadership to define the community’s political aspirations. The so-called “Vision Documents” advocate full Jewish-Arab equality, adamantly reject the notion of a Jewish state and call instead for a “binational state” – in essence, challenging Israel’s current self-definition. This, for many Jews, is tantamount to a declaration of war.

For its part, Israel’s Jewish majority – confronted by an internal minority developing alliances outside the state and seeming to display solidarity with its foes – has grown ever more suspicious of a community it views as a potential fifth column. It has shunned Palestinians, enacted legislation to strengthen the state’s Jewish identity and sought to ban certain Arab parties and parliamentarians. Today, what for most Palestinian citizens is a principled struggle for equal rights is perceived by many Israeli Jews as a dangerous denial of Jewish nationhood. What for most Jews is akin to complicity with their enemies is viewed by Palestinian citizens as an expression of affinity for their brethren.

This is taking place against the backdrop of a peace process in which very little is happening – and what is happening only makes matters worse. Prime Minister Benjamin Netanyahu insists that the Palestine Liberation Organisation (PLO) accept Israel as a Jewish nation-state in the context of a final status agreement. That request resonates widely with Israel’s Jews, but raises all sorts of red flags for its Palestinian citizens, who have vigorously pressed the PLO to reject it. They might not have a veto, yet President Mahmoud Abbas cannot easily dismiss their views on such matters and has shown no inclination to do so. All of which has only elevated the centrality of the demand, making it all the more important for Israel’s government and all the more unacceptable to its Palestinian minority.

Add to this the idea, floated by Foreign Minister Avigdor Lieberman’s party, of “populated land swaps” – under which certain Arab-majority areas of Israel would be swapped for some of the so-called West Bank settlement blocks. Alarmed that they could twice pay the price for a two-state settlement – through acquiescence in their state’s “Jewishness” and through forcible loss of their citizenship – Israel’s Palestinian minority is making it ever clearer that peace deal or no peace deal, there will be no end to Palestinian claims until their demands also are met. To which Israel’s response is: Why pay the hefty price of an agreement with the PLO if it leaves behind an open wound right in our heart?

It was not meant to be so. Originally, the notion was that progress in the peace process would help improve Arab-Jewish relations in Israel. Instead, simultaneous deterioration on both fronts has turned a presumably virtuous circle into a dreadfully vicious one. Neither the State of Israel nor its Arab minority will be willing to reach a historic understanding before the Israeli-Palestinian conflict has been settled; and settling that conflict will be near-impossible without addressing the question of Israel’s nature – which itself cannot be done without the acquiescence of Israel’s Arab citizens.

For now, this downward spiral has resulted in relatively few violent confrontations. For the most part, Israel’s Palestinians fear an escalation could erode their civil rights and further jeopardise their status in the state. But the frequency of clashes is rising. Should current trends continue unabated, localised intercommunal violence should come as no surprise.

It will not be easy to sort this out, not with a frozen peace process, not with deepening Jewish-Arab antagonism and mutual fears. But some things are clear. First, that there are long overdue measures Israel should take to begin to address its Arab minority’s demands for equal rights, regardless of the conflict with its neighbours, as well as steps Palestinian citizens can take to lessen Jewish fears. Secondly, that although obstacles to Israeli-Palestinian peace are legion, a significant one involves the dispute over Israel’s identity. Thirdly, that this obstacle cannot be overcome to any party’s satisfaction – not to the PLO’s, which cannot afford to ignore an important Palestinian constituency; not to Israel’s, which insists on ending all Palestinian claims – without buy-in from Israel’s Arab citizens.

Given this, a pathway, however tentative and uncertain, might suggest itself. Both national groups – Jews, working through their government; Palestinians, working through their national movement – could conduct, in parallel, internal deliberations over the character of the State of Israel and its implications: what it would mean practically for Israel to be accepted as the nation-state of the Jewish people; what would be entailed if Palestinians accepted the principle of Jewish self-determination; and what rights the Arab minority would enjoy? By clarifying their respective positions, Israel and the Palestinian national movement might be in a better position to grapple with issues at the core of their historic conflict. Pragmatists on both sides have begun this work, a rare bright spot in a decade-long downward spiral. But so far their efforts above all have underscored the enormity of the task that lies ahead. More will be needed for Israel and its Palestinian citizens to reach an understanding on how precisely they will live together – and avoid drifting dangerously apart.

Nazareth/Jerusalem/Ramallah/Brussels, 14 March 2012