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Israeli settlement dashes two-state solution -

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EMILY BOURKE: Hopes for two-state solution to the Middle East conflict are fading fast with the latest wave of Israeli settlement construction in the West Bank and East Jerusalem.

The United States has called on Israel to reconsider a decision to allow 3,000 more homes for Jewish settlers as well as the construction work in the strategically sensitive corridor known as the E1 land tract.

Several European nations have summoned Israeli ambassadors to protest against the expanded plans and Australia has followed suit.

The UN secretary general Ban Ki-moon says Israel's move is almost a fatal blow to the two-state solution but others are playing down the significance of the expansion and the threat to peace.

Among them, Elliot Abrams, Senior Fellow for Middle Eastern Studies at the US Council on Foreign Relations.

ELLIOT ABRAMS: I think the Israelis exaggerated the impact of the Palestinian move by the UN and I think the Europeans and others are exaggerating the impact of the Israeli reaction. I think people should calm down on all sides.

EMILY BOURKE: You don't think 3,000 new homes is provocative, is of a concern?

ELLIOT ABRAMS: I think the critical question here is the physical expansion. The physical expansion of settlement.

EMILY BOURKE: How does this work in Israel's interests internationally?

ELLIOT ABRAMS: Oh it doesn't but every Israeli government has done this. In fact I think you would find that previous governments that work to the left of Netanyahu, the Olmert government, the Barak government, actually built more units than has been built under Netanyahu.

So all Israeli governments really have done this in Jerusalem and in the settlements and the international reaction has always been negative.

But it seems to be a consensus issue in Israel, in the major block, and not all over the West Bank, but in the major blocks because Israelis believe that in the end, when a deal is done, they will keep those major blocks.

And every deal that's been offered, Barak to Arafat and Olmert to Abbas has been based on that view, and the Clinton parameters of the year 2000 were based on that view.

EMILY BOURKE: But given the placement of this settlement and this push into the E1 land tract, is that not deliberately provocative, is that not problematic as far as a two state solution goes?

ELLIOT ABRAMS: You know I think it's been greatly exaggerated. Again, it's not some kind of right-wing plot. Rabin and Barak both planned to build in E1. The Clinton parameter, the Olmert plan, all assumed that E1 would be part of Israel in its final settlement.

The thing is you've got a town, Ma'ale Adumim, of 40,000 people that's like a balloon tethered to Israel by one road and that's just never going to stand. I don't understand really the argument that it destroys the possibility for Palestinian states.

EMILY BOURKE: But is it not the case that it virtually bisects the West Bank and renders a Palestinian state unviable?

ELLIOT ABRAMS: No, I think that's wrong. There are two ways to solve the problem. Build a road that is east of Ma'ale Adumim where there's about 15 miles as I recall it between Ma'ale Adumim and the Jordan River. Or there's a road that goes between Jerusalem and Ma'ale Adumim. So build an overpass or build an underpass.

But the notion that it makes a Palestinian state impossible, I mean it's ironic that this argument comes the week after the UN has declared there is a Palestinian state. I mean they admitted the Palestinian state as a non-member state of the United Nations. They raised the status from into each a state.

So I just don't think it makes it unviable. You just build an overpass or an underpass. It is not a decision to construct. There will not be one shovel hitting the earth. It's just another stage in this endless planning stage that has been going on for about 30 to 40 years. It is not a decision to construct anything in E1.

EMILY BOURKE: Britain, France, Spain, the United States and Australia for that matter have all voiced concern about this development and the UN secretary general Ban Ki-moon says the settlements, it's almost a fatal blow to peace. You don't regard it as that. They're all wrong.

ELLIOT ABRAMS: No, I think that, no I don't say they're all wrong. The United States' position has always been to oppose further construction. I think we should keep a level head.

It's not some kind of great threat to peace. It does not end the possibility of a two-state solution. It is not some kind of horrendous, earth-shaking event and I think we have taken our eye off the ball.

Something is happening right now this week that is going to end up in another war and that is the failure to close the tunnels between Egyptian Sinai and Gaza. If more Iranian missiles pour into Gaza there will be another row. That's just definite.

That's actually happening this week. You can read it in The New York Times, The Washington Post - the tunnels are opening again. That's really dangerous. A planning decision that may or may not result in some further construction, five years from now, is not such a great threat to peace.

EMILY BOURKE: That's Elliot Abrams, Senior Fellow for the Middle Eastern studies section at the US Council on Foreign Relations.