Netanyahu and Ahmadinejad best of enemies?

BEIRUT (Reuters) - As adversaries go, Benjamin Netanyahu and Mahmoud Ahmadinejad are oddly well-suited.

The hardline Israeli prime minister and the fiery Iranian president seem to feed each other rhetorical ammunition to whip up fears that bolster them in domestic politics and beyond.

Between them, they are stubbornly testing the limits of U.S. power in the Middle East and undermining the "new beginning" in relations between America and Muslims that President Barack Obama proposed in an eloquent Cairo speech nine months ago.

Netanyahu contends that Iran is seeking a nuclear bomb to fulfill Ahmadinejad's declared wish for Israel's destruction. Confronting it, he argues, eclipses the importance of U.S.-led attempts to revive peacemaking with Palestinians and Arabs.

For Ahmadinejad, who says Iran's nuclear ambitions are purely peaceful, any breakdown of U.S. mediation backs up his doctrine that armed resistance, not negotiations, is the only way to regain Israeli-occupied land, especially Jerusalem.

His emotive calls for Muslims to defend the city, which is also holy to Jews and Christians, resonate across the Arab and Islamic worlds, as well as with many Palestinians.

So Israeli plans to build 1,600 more homes for Jews on West Bank land annexed to Jerusalem -- announced last week during a visit to Israel by U.S. Vice President Joe Biden -- enraged Ahmadinejad's audience of choice. They also brewed a diplomatic storm with Washington, whose minor success in nudging the Palestinians toward indirect peace talks may have vaporized.

Abbas indicated on Wednesday that there would be no "proximity talks" unless Israel froze all settlement building.

Netanyahu offered regrets for what U.S. Secretary of State Hillary Clinton called "insulting" behavior, but did not scrap the plan. Instead he rejected any curbs on Jewish settlement in and around Jerusalem in a defiant parliament speech on Monday.

"Ahmadinejad is justifiably thrilled," wrote Israeli journalist Akiva Eldar in the liberal Haaretz newspaper. "Jerusalem is the preferred arena for Iran and its regional allies to clash with the United States and its Mideast allies."

Iran projects influence in the region partly by backing Islamist militant groups like Hezbollah in Lebanon and the Palestinian Hamas movement, which mock peace talks between Israel and Western-backed Palestinian President Mahmoud Abbas.

SPOILER OR HERO?

A U.S. failure to broker resumed peace negotiations of any sort would be a victory for Ahmadinejad, who casts himself as a resistance leader against U.S.-Israeli "hegemony" in the region.

And a flare-up over Jerusalem can only make it harder for Washington to canvas Arab support for tougher sanctions on Iran.

Obama sees Middle East peace talks as vital to broader U.S. interests, including efforts to combat al Qaeda; stabilize Iraq and Afghanistan; block any Iranian quest for nuclear arms; and reset U.S. relations with Arabs and Muslims across the world.

Renewed tension in the Middle East complicates Obama's bid to tamp down conflict there, while he grapples with a host of other challenges jostling for his attention at home and abroad.

"I don't think the president has the time or energy for this now. He has a whole economy to save," said Lebanese political analyst Osama Safa, adding that Washington wanted to buy time on the Israeli-Palestinian conflict so it could focus on Iran.

"They are trying to muster an international consensus and impose sanctions, which are bound to get a violent reaction from the Iranians. So if you can keep the peace process at least cruising on auto pilot, even though not achieving anything, you are at least quietening that front," Safa argued.

But a row over Jerusalem that fuels the wider confrontation between Iran and Israel may suit Netanyahu and Ahmadinejad.

It may help the Israeli leader keep his rightwing coalition afloat and boost his appeal to Israelis who fear Iran -- though many would be alarmed if his policies damage ties with America.

Ahmadinejad uses the threat of an Israeli or U.S. military strike on Iran's nuclear sites to rally nationalist sentiment and brush aside opposition challenges to his legitimacy.

Obama's predicament, meanwhile, becomes ever more acute as he seeks to avoid war with Iran and salvage some momentum toward settling the Middle East conflict, with Jerusalem at its heart.

He has seen his offers of dialogue and nuclear deals rebuffed by Ahmadinejad, prompting the United States to seek harsher sanctions, if only to dissuade Israel from attacking Iran, an act that would risk igniting a regional conflagration.

Netanyahu has also proved unbending. His stonewalling of Obama's demand last year that Israel halt all settlement building, in the interests of peace, only confirmed for many Arabs that the United States would not stand up to Israel.

Now, America's credibility and its own interests are again at stake in its handling of a conflict that stirs emotions and sways governments far beyond the Holy Land.

"Clearly the tensions, the issues and so forth have an enormous effect," U.S. General David Petraeus, whose Central Command area includes Iran, Afghanistan, Iraq and much of the Arab world, said of the Israeli-Palestinian struggle on Tuesday.

"They set the strategic context within which we operate in the Central Command area of responsibility."

(Editing by Dominic Evans)