Bruce Anderson: Take no notice of Mr Sharon's emotional blackmail, Mr Blair

'As long as Palestinians are condemned to the shadows, Israelis will never be able to relax in the sunshine'

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Leading article: Mr Arafat's visit is welcome, but it is the US that matters

In the next phase of his Middle Eastern diplomacy, Tony Blair is meeting Yasser Arafat in London today. It is hard to feel enthusiasm for the Arafat visit; for decade after decade, he has been associated with failure after failure. That is why some of his visceral foes of the Israeli right have come to acknowledge his merits, on their terms. An opponent who can always be relied on to be incompetent, he now runs a squalid, corrupt, oppressive, self-discrediting statelet.

A deal with the Israelis was almost reached at Camp David last year, until Mr Arafat rejected it, thus acquiring all the blame for breakdown, until Ariel Sharon came along to help him with the burden. Abba Eban, a former Israeli foreign minister, once said that Mr Arafat never missed an opportunity to miss an opportunity, which could prove to be his epitaph. It is all very depressing.

It is time to look beyond an ignoble over-publicised figure to a noble and neglected cause: that of Palestine. Over the past 50 years, the Israelis have had a remarkable record of achievement. They have literally made the desert bloom while building a modern economy which is much less dependent on American aid than their detractors will acknowledge. Israel is also a beacon of democracy, free speech and the rule of law, in a region which is short of those qualities.

But Israel's successes have a grim aspect too; they are founded on Palestinian displacement and suffering. As long as this remains unrectified, Israel will never know security. As long as the Palestinians are condemned to the shadows, the Israelis will never be able to relax in the sunshine.

There is a limit to what can be done. The Palestinians who hope to return to their former homes in Israel are living in fantasyland, but there is still an alternative: a proper Palestinian state, as opposed to a Bantustan.

After the 1967 war, Israel missed an historic opportunity to trade Palestinian land for peace with the Palestinians. It is easy to understand why Israeli politicians miscalculated. With possession of the West Bank, they felt much less vulnerable to a simultaneous attack by all their neighbours. In the pre-1967 boundaries, the western part of the west bank was only 12 miles from the Mediterranean; the fear was that a successful tank thrust could cut Israel in two. As so often, however, the strategists were fighting the last war.

Over the intervening years, it has become clear that the real threat to the Israelis does not arise from conventional warfare. Tanks and infantry ought to worry them less than rockets and suicide bombers. As long as millions of Palestinians are living in terror-genic conditions, secure frontiers are an irrelevant anarchism.

As well as security miscalculations, darker forces were at work in Israel. There was a case for insisting that any future arrangements in the West Bank must take account of Israel's defence needs. There was no case for planting Israeli settlements in order to ensure that it would be mightily hard for any Israeli government to give up the West Bank. Some Israelis – at times Mr Sharon seemed to be one of them – believed that a Palestinian state already existed, and that its name was Jordan. So the West Bankers merely needed encouragement to migrate across the Jordan River. Palestinian extremists are not the only ones who nourish dangerous fantasies.

There are formidable obstacles to establishing a Palestinian state. It would require the dismantling of many Israeli settlements, and a complicated deal on the old city of Jerusalem. The Israelis who captured the old city in 1967 used only small arms, for fear of damaging the monuments. Therefore they suffered more casualties than they would otherwise have done before arriving at the Wailing Wall, the first Jews who had been able to pray there for almost 20 years. Israelis will never relinquish the right to pray at that wall.

Equally, even if a Palestinian state were established, there would still be terrorism. Mr bin Laden and his followers do not want peace with Israel. They will not rest until Israel goes the way of the World Trade Centre, and a fundamentalist theocracy is established from the Maghreb to the Punjab.

But an agreement on Palestine would strengthen all the moderate, pro-Western forces in the region. Ultimately, they will have to do most of the work in resisting the fundamentalists, yet their position is under constant threat from genuine popular moral outrage over Palestine, feelings which many of them share.

There are some cautious grounds for optimism. When the new Bush administration came to power, it seemed that the Middle Eastern peace process was off the agenda. Most of President Bush's advisers thought that Mr Clinton had been trying to force the pace in order to secure his place in history; they were not interested in such meretricious grandstanding. Some crucial figures, especially the Defense Secretary, Donald Rumsfeld, and his deputy, Paul Wolfowitz, believed that the apparent complexities of the Middle East were underlined by a simple truth: Israel is always right.

These days, however, Palestine is back on the agenda and the deal which was so nearly achieved at Camp David must be resurrected. Historically, Republican administrations have been readier to put pressure on Israel than Democratic ones. Domestic politics explain this; while the Democrats could never hope to win the presidency without Jewish votes and Jewish money, these are an optional extra for the Republicans.

But other factors are at work too. In 1981, the Reaganites arrived in office believing that Israel could do no wrong. Within 18 months, strategic realities had dictated a reassessment, though this did not lead to a peace deal. In 2001, a similar re-evaluation has taken place. America's many Arab allies have now persuaded Mr Bush that he cannot continue to neglect the Palestinians.

Mr Blair has come to the same conclusion, so his meeting with Mr Arafat could be useful, as long as he does not give in to the temptation to hype the outcome. It is easy to recognise that the Palestinians must have a state (while nourishing the private hope that they will rapidly find worthier leaders than Yasser Arafat). But it will be hard to turn that aspiration into a reality.

The West starts with some advantages. Many American Jews have now come to accept the need for a Palestinian state, as many Israelis have. Mr Sharon has complained about appeasement and has warned the West not to sacrifice Israel's interest. This deserves an uncompromising response. Mr Bush has always been a friend of Israel, as has Mr Blair. They are entitled to insist that they have a broader understanding of Israel's security needs than Mr Sharon does and that they will not succumb to his emotional blackmail.

Repelling the Sharon rhetoric is the simple bit; it could take years to negotiate a historic compromise. That said, many years have now been wasted in neglecting the problem. Its difficulty only adds to its urgency.