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President Obama started the year promising a big push to promote Arab-Israeli peace. His administration ends the year, as one U.S. official put it, in a cul-de-sac. The U.S. has been unable to get Israeli-Palestinian talks started, to the frustration of many Arab states.

NPR's Michele Kelemen reports.

MICHELE KELEMEN: Israeli Ambassador Michael Oren felt he knew a lot about the U.S.-Israel relationship when he came to the job as a historian who has taught at Yale and Harvard. He spent decades writing about this relationship.

Ambassador MICHAEL OREN (Israel): What I had learned as a researcher and as a historian was, actually, in fact, very little. That you learned a lot more about the relationship once you sit behind this desk in the ambassador's office and find out that the U.S.'s relationship is much more multilayered, deeper, in many ways, stronger than anything I had anticipated.

KELEMEN: And that has helped him get through some turbulent times this year. Many Israelis were initially worried about President Obama, particularly his policy on Iran.

Amb. OREN: The Obama administration came into office with an express policy of outreach, engaging the Iranian regime without any preconditions. Our position was: We're afraid.

KELEMEN: Now that the U.S. is leaning toward tougher sanctions on Iran, Ambassador Oren sounds more at ease with the Obama administration's approach.

The other major source of tension was President Obama's early commitment to the creation of a Palestinian state, an issue he brought up on his first full day in office.

President BARACK OBAMA: It will be the policy of my administration to actively and aggressively seek a lasting peace between Israel and the Palestinians, as well as Israel and its Arab neighbors.

KELEMEN: The president called on Arab states to make positive gestures to Israel, and he called on Israel to stop building Jewish settlements in the occupied West Bank. By May, Secretary of State Hillary Clinton made clear that there should be no exceptions to that, even for what the Israelis call natural growth - adding extra rooms or schools to meet the needs of a growing population.

Secretary HILLARY CLINTON (Department of State): With respect to settlements, the president was very clear when Prime Minister Netanyahu was here. He wants to see a stop to settlement, not some settlements, not outposts, not natural growth exceptions.

KELEMEN: Ambassador Oren said no Israeli government could agree to that. What Israeli Prime Minister Benjamin Netanyahu proposed instead was a 10-month, partial freeze of settlement activity � a moratorium that does not include East Jerusalem. Secretary Clinton stopped talking about a full settlement freeze and called the Israeli decision unprecedented.

Ambassador Oren says, for Israel, this dispute is over.

Amb. OREN: The settlement issue as a potential source of friction � if not something bigger than friction � in the relationship between the U.S. and Israel, has largely been neutralized by the moratorium.

KELEMEN: But the diplomat who represents Palestinians here in Washington, Maen Areikat, says he doesn't think the Obama administration is or should be satisfied with the partial settlement freeze.

Mr. MAEN AREIKAT (Diplomat): This partial agreement was a joke to start with. There are already reports in the press that 10,000 settlers will be moving to Israeli settlements in the year 2010. You know, any moratorium that does not include a total cessation of settlement activities, including in Jerusalem, is not a meaningful moratorium.

KELEMEN: The chief of the PLO mission in Washington says he hasn't given up on the Obama administration, though this has been a year of ups and downs.

Mr. AREIKAT: Our expectations were higher following the landmark speech of President Obama in Cairo in June. And our expectations were higher when the administration took a very tough and firm stand vis-a-vis Israeli settlement activities. But, you know, at the same time, we are not going to completely discard the fact that this administration made it clear that it is in the U.S. national interest to establish a Palestinian state alongside Israel.

KELEMEN: Areikat is encouraging the U.S. to come up with, as he put it, the terms of reference for negotiations, to define the endgame and lay out a time frame. Only under those circumstances, he said, would the Palestinians be able to return to the negotiating table.

Michele Kelemen, NPR News, Washington.

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