Q+A: "Crisis" in U.S. relations with Israel

JERUSALEM (Reuters) - The United States feels "insulted" by Israel, where many leaders feel equally affronted, prompting U.S. President Barack Obama to take the unusual step on Tuesday of reaffirming an "unbreakable" bond with Israel.

It is the worst crisis in relations since the 1970s, says Israel's envoy to Washington. Here are answers to key questions:

WHAT'S BEHIND THE SPAT? Obama wants better ties in the Arab and wider Muslim world, to help stabilize the oil-exporting Middle East, including Iraq, curb Iran's alleged quest for nuclear arms and stifle threats from al Qaeda and its allies to U.S. global interests, including in Afghanistan. Resolving, or at least being seen trying to end, the Palestinians 60-year struggle with Israel might help.

While Washington has shown little patience with Palestinian conditions for talks, notably a demand for a total freeze on Jewish settlement expansion, and has no sympathy for violent Palestinian hardliners such as Islamist Hamas, it is also keen to get both sides talking and for Israel not to rock the boat.

So, having got Palestinian President Mahmoud Abbas to end 15 months of boycott and begin to negotiate via U.S. intermediaries in "proximity talks," and having U.S. Vice President Joe Biden in Jerusalem to seal the deal while assuring Israel of American resolve to protect the Jewish state against Iran and all comers, an Israeli ministry's approval of 1,600 new settler homes in the Jerusalem area on March 9 caused ructions.

AND ISRAEL HAS RUSHED TO Apologize?

Only up to a point. U.S.-educated Prime Minister Benjamin Netanyahu was quick to say that the approval was a bureaucratic procedure -- at a ministry controlled by a pro-settler religious party in his coalition -- and does not mean actual construction work for a good long while yet. He set up a committee to ensure he is not blindsided again. No offence to Biden was intended, Netanyhu said, after Obama's deputy kept him waiting for over an hour at a state dinner. In any case, Israel said, buildings at Ramat Shlomo, on West Bank land occupied since 1967 and annexed by Israel in the face of international objections, is destined to be part of Israel in any eventual partition deal with Abbas. They fall outside a partial 10-month settlement freeze announced by Netanyahu in November that Clinton hailed as "unprecedented." And, Netanyahu said on Monday, no Israeli government had ever not built in and around East Jerusalem since it was captured, so it was unreasonable of the Palestinians to demand he do so now.

WERE THE AMERICANS SATISFIED?

U.S. Secretary of State Hillary Clinton called Netanyahu on Friday to demand he act to show his commitment to a relationship with Israel's key ally and to the peace process; Biden's treatment was "insulting." U.S. officials are working to repair the peace negotiations, seeking to bridge a gap that has opened again between the Israeli position and Palestinian demands that the Ramat Shlomo building approval be reversed and an undertaking be given for no new settlement expansion. But on Tuesday, although Obama's Middle East envoy George Mitchell delayed a trip to the region meant to push Israeli-Palestinian talks, Clinton and Obama spoke respectively of "unshakeable" and "unbreakable" bonds between the United States and Israel.

SO IS THAT IT?

Hardly. Israel will be pleased to hear those assurances from the United States. The Obama administration will hope Netanyahu can hold back his pro-settler allies from further demonstrations of determination to retain occupied land while Mitchell tries to coax Abbas back to negotiations, as the Palestinian leader looks over his shoulder at invective from Hamas in the Gaza Strip and a surge in violent anti-Israel protests by Palestinians in his own backyard in the occupied West Bank and East Jerusalem.

ALL FRIENDS AGAIN?

Yes and no. Israelis continue to mistrust Obama, not least since his bid for friends in the Muslim world formed such a key part of his early foreign policy gambits. One of Israel's main newspapers portrayed the first black U.S. president on its front page this week as a cartoon cannibal boiling the prime minister in a cooking pot. Liberal commentators in the United States are grumbling that American ties to Netanyahu and Israel come at a high cost in Washington's wider struggles with Islam. In Israel, commentators suggest Netanyahu needs to go along with the peace process, about which he has long voiced skepticism, until at least November, when congressional elections may see a boost for Israel's traditional friends on the American right and remind Obama he may need pro-Israel votes to get re-elected in 2012.

IS IRAN CELEBRATING?

If so, it's premature. Behind discussions of talks with the Palestinians, Israel, which relies on its U.S. ally for military hardware, missile defense and other defense assistance as well as private economic support from American donors, has been working with Washington in joint efforts to curb a nuclear programme which, despite Tehran's denials, both believe is aimed at building a nuclear arsenal that could be aimed at Israel.

For Netanyahu, Iran appears to be the prime threat.

Some U.S. commentators have sounded the alarm that losing Israel's goodwill could jeopardize Washington's efforts to hold Israel back from a threatened military strike on Iran. Others have suggested that the rocky patch in relations with Washington may make Israel less willing to make things worse by launching a strike at a time when U.S. officials have made clear they want to give sanctions time to change Tehran's policy first.

Whatever the hiccups in U.S.-Israel ties, the signal from Washington on Tuesday seems to be that, in matters of security -- i.e. Iran -- the two governments are in step, for now.

(Writing by Alastair Macdonald; Editing by Louise Ireland)