Audio Transcript:

President Obama has sent a team of high-level national security officials to the Middle East. He's trying to revive an Arab-Israeli peace process that has yet to get off the ground. The World's Matthew Bell reports.

LISA MULLINS: I'm Lisa Mullins, and this is The World. Today in Iran the foreign ministry repeated that Tehran is not aiming to develop weapons as part of its nuclear program. Also today, an Israeli newspaper Ha'aretz said that it has a leaked document that shows Israeli settlers on the occupied West Bank have topped 300-thousand for the first time. As Matthew Bell reports the two issues are tightly linked to the Obama administration's Middle East peace agenda.

MATTHEW BELL: Agenda item number one is reassuring Israel that the US is serious about dealing with Iran's nuclear program. Number two, is re-starting the stalled peace process between Israel and the Palestinians. Speaking in Israel today, defense secretary Robert Gates said both of these goals would serve the long-term security interests of America's most important Middle East ally. He said the United States would address Israeli security concerns as Washington works to make the creation of a Palestinian state possible. And as for president Obama's willingness to engage the Iranians through dialogue.

ROBERT GATES: The president has been quite clear that this is not an open-ended offer to engage, we're very mindful of the possibility that the Iranians would simply try to run out the clock.

MATTHEW BELL: Gates tried to reassure the Israelis that Mr. Obama is working by a timetable. He wants the Iranians to start talks this fall, and he wants the talks to show some progress by the end of the year. Israel's defense minister Ehud Barak emphasized his government's position that Iran's nuclear program poses a grave and growing threat.

EHUD BARAK: No options should be removed from the table, this is our policy, we mean it, we recommend to others to take the same position but we cannot dictate it to anyone.

MATTHEW BELL: The difference among friends here, according to David Makovsky of the Washington Institute for Near East Policy, is that the Israelis are ready for US-led diplomacy with Iran to fail. And they're wondering, what happens then?

DAVID MAKOVSKY: They don't doubt that Washington means well, but they're curious what happens next. And it's unclear if the Obama administration is there because the negotiations haven't even opened. But I think the Israelis are already thinking about plan B.

MATTHEW BELL: Makovsky says US-Israeli coordination on Iran could suffer because the second item on the agenda administration's Middle East agenda has hit a snag, and that's over the issue of Jewish settlements in the West Bank and East Jerusalem. President Obama has called for a total freeze on settlement growth, but Israel's right-wing prime minister, Benjamin Netanyahu has refused. The Palestinians say they won't even sit down and talk with the Israelis unless settlement building stops. David Makovsky, who co-wrote a new book on US policy in the Middle East, called Myths, Illusions and Peace, says there's a great deal at stake for Barack Obama in this stand-off.

DAVID MAKOVSKY: I think there's a logic what the President was trying to do on in terms of curbing settlement activity. But I think by taking it to the end degree, so to speak, instead of facilitating the negotiations, you know, now basically it's becoming an obstacle to the negotiations. And I don't think that's what President intended.

MATTHEW BELL: For weeks, news reports have said the two sides are close to a compromise on settlements, but the longer this rift with the US drags on, the greater the political risk for Israel's prime minister. Middle East expert Daniel Levy of the New America Foundation in Washington says, no one should know that danger better than Benjamin Netanyahu, whose nickname is Bibi.

DANIEL LEVY: He fell as prime minister in the late 1990's when he, in a not smart way, got on the wrong side of the Clinton administration. It's a high stakes game. I think what Bibi is betting on is that the Obama administration won't have the stomach to go forward with this.

MATTHEW BELL: For now, Israeli public opinion appears to be with Bibi Netanyahu, but Levy says if Mr. Obama can persuade Israelis that what he's asking them to do is reasonable, and would lead to a chance for peace with the Palestinians, then it will become more and more difficult for Netanyahu to keep saying no to the American president. For The World, I'm Matthew Bell.