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In Nu'man, one of the villages the UN says is "living in limbo", the situation is particularly dire. The village is surrounded on three sides by Israel's West Bank barrier and on another by the Israeli settlement of Har Homa. The village entrance is blocked by an Israeli checkpoint to anyone other than Nu'man residents. Permits are not given for new homes in the village, and the younger generation is being forced out. Israel annexed Nu'man to Jerusalem after the 1967 war, but never gave its people Jerusalem residency.

Israel's hardline foreign minister, ­Avigdor Lieberman, lives in Nokdim, one of the Jewish settlements in the Beth­lehem area, some way to the east of Israel's barrier.

His party would also have four other ministers in the cabinet, including national security minister, as well as the post of deputy foreign minister.

Lieberman, 50, a Russian-speaking immigrant born in Moldova, resigned from the government in January last year in protest at the restarting of peace talks with the Palestinians, saying: "Negotiations on the basis of land for peace are a critical mistake ... and will destroy us."He is an unashamed hardliner who campaigned on the promise of a new law aimed at the country's Arab minority which would require Israelis to swear an oath of loyalty to Israel as a Jewish state or lose their citizenship.He also advocates carving out part of the Galilee that is home to Arab Israeli villages and handing it over to Palestinian control, stripping the residents of their Israeli citizenship. Those policies proved popular enough for him to come third at the polls, but the oath of loyalty is thought unlikely to come into law.

The agreement between Netanyahu and Lieberman gave a taste of the policies that would follow. "Toppling the Hamas government in the Gaza Strip will be an Israeli strategic goal," the agreement said. The new government would act "with determination" to stop rocket fire by militants in Gaza.It also said: "The government will not conduct political negotiations with terrorist organisations or terrorist elements."Settlements are likely to continue to grow – Lieberman himself lives in Nokdim, a settlement south-east of Bethlehem in the occupied West Bank.

Netanyahu has said the current peace talks with the Palestinians will not succeed and that he would rather pursue an "economic peace", by which he means financial investment in the occupied West Bank.

He also intends to make Iran the centre of his foreign policy. The agreement said: "Israel will make every effort, especially with regard to the international community, to prevent the nuclear armament of Iran, while emphasising that a nuclear Iran, representing a danger to Israel, countries in the region and the entire free world, is unacceptable."

Riad Malki, the Palestinian foreign minister, said: "We have to declare that sadly there is no partner on the Israeli side to negotiate with."

Lieberman, an immigrant and former nightclub bouncer from former Soviet Moldova, does not talk about Palestinian independence. Instead, his party's vision on the two-state solution states: "Israel needs to explain that the demand for a Palestinian state and the refugees' right of return is a cover for radical Islam's attempt to destroy the State of Israel." Lieberman was a member of the current Israeli government, but walked out in January last year as soon as peace talks restarted with the Palestinians.

Britain, in particular, is critical of Israel's settlements in east Jerusalem and the West Bank, all of which are illegal under international law. But that cause might be harder to argue in future given that the almost 500,000 Israeli settlers include Lieberman and his family, who live in Nokdim, deep inside the West Bank.

Lieberman's main target has been his country's own Arab minority, who make up a fifth of the population, and of whom he has said: "Israel is under a dual terrorist attack, from within and from without. And terrorism from within is always more dangerous than terrorism from without."

It was this campaign, particularly his call for Arabs to swear an oath of loyalty to Israel as a Jewish state, that won him so much support in the elections. He has even suggested that some elected Arab MPs in the Israeli parliament should be tried for treason and then executed.He also appeals to more secular Israelis, arguing in favour of civil marriages, as well as advocating a more presidential style of government.

The Palestinian ambassador to Beirut, Abbas Zaki, said in a television interview in early May that the two state solution would result in Israel's collapse, the use of weapons wouldn't solve anything, but political negotiation without the use of arms wouldn't work either. "In light of the weakness of the Arab nation and the lack of values, and in light of the American control over the world, the PLO proceeds through phases, without changing its strategy." With Allah's help, Zaki said, "we'll drive them out of all of Palestine." That doesn't sound much like a solution for the Israelis.

Obama risks nothing by offering to negotiate with Iran. As he said on Monday, he wants to see results by the end of the year. If Iran doesn't budge, Obama will have to change his strategy. If Bush was a cowboy with a soft heart, Obama is an iron fist in a velvet glove. He shouldn't be underestimated, just because he's charming, polite and obliging. Such traits alone have yet to make an American president.

Obama knows that Iran won't attack Israel, because as much as the ayatollahs and mullahs want a "world without Zionism" and wish that Israel would disappear from the map or better yet, from the history books, they still prefer to live in the lap of luxury and -- when needs be -- they send others to paradise. But an nuclear preventative or counter strike by the Israelis would end their comfortable lives for good.

For their part, the Iranians know that their threat of force, if credible enough, is just as effective as the actual employment of the threatened means. They don't need to attack Israel; it's enough to float the threat. Israel is not going to collapse overnight, but it could erode with time -- through emigration, demoralization and economic decline. Who wants to live or invest in a country that may one day go up in an atomic mushroom cloud?

Israeli military officials, speaking on the condition of anonymity under army rules, said that Palestinian forces would now be able to operate 24 hours a day in the cities of Ramallah, Qalqilya, Bethlehem and Jericho, and would have to coordinate less with Israeli forces in the area, implying that the forces would reduce their own nighttime raids on those cities.

Israeli forces have been carrying out arrest raids almost nightly. On Wednesday night, for example, seven Palestinian suspects were arrested, and on Monday night six were arrested, including three from Qalqilya.

Military officials emphasized that the army would continue to operate in all the West Bank, but one said that the army would now enter the four cities only “in case of an urgent security need, and in accordance with security assessments.”

Two recent deadly shootouts in Qalqilya between Palestinian forces and armed Palestinian militants of the Islamic group Hamas have been mentioned as evidence of a new determination on the part of the Palestinian security apparatus. Four police officers, four militants and a bystander were killed in the clashes that occurred during attempts to arrest the gunmen.

In addition to removing the checkpoints, Israel says it has agreed to issue more V.I.P. cards for Palestinian businessmen, to ease their passage over the crossings into Israel.

He also called on Obama to pull out Lieutenant-General Keith Dayton, the US security co-ordinator in the region, who is supervising the training of Palestinian forces in the West Bank.

"The call by the Israeli leader for a Jewish state is nothing but a racist call, no different from Nazis and other calls denounced by the international community."

"Peaceful resistance works for a civil rights struggle, not in front of an occupation armed to the teeth."

"We appreciate Obama's new language towards Hamas. And it is the first step in the right direction towards a dialogue without conditions, and we welcome this," he said.

Israeli and Western sources said the Israel Defense Forces would refrain from entering Bethlehem, Ramallah, Jericho and Qalqilya, except in cases where the army believed Palestinian militants were poised to attack Israelis. The move stops short of a full withdrawal from these towns.

The United Nations Office for the Coordination of Humanitarian Affairs (OCHA) announced yesterday that the Israeli authorities had somewhat eased travel restrictions for Palestinians to and from four cities in the West Bank: Jericho, Ramallah, Nablus and Qalqilyah.

However OCHA also said that the Israel Defense Forces claim that there are only 16 manned roadblocks in the West Bank is incorrect. According to OCHA there are 69 manned roadblocks.