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By Crispian Balmer
JERUSALEM (Reuters) - President Barack Obama is due to make his first official visit to Israel and the Palestinian Territories this week, looking to improve ties after sometimes rocky relations with both sides during his first term in office.
Obama is not expected to come with any new Palestinian peace initiative and will spend most of his time in Israel, the closest U.S. ally in the Middle East, where he will make a keynote speech to hundreds of students.
The American president will hold separate talks with both Palestinian President Mahmoud Abbas and Israeli Prime Minister Benjamin Netanyahu, who finally formed a new coalition on Friday after a January election that weakened his grip on government.
Here are some of the issues that are likely to dominate the March 20-22 visit.
IRAN AND THE BOMB
Israel and the United States agree that Iran should never get a nuclear bomb, dismissing Tehran's repeated assertion that its atomic program is peaceful. However, the two allies are at odds over how fast the clock is ticking down on the need for preventative military action should diplomacy fail.
Netanyahu last year set a "red line" for Iran's nuclear program, saying the Islamic Republic should not be allowed to obtain 240 kg (530 lb) of 20 percent enriched uranium. Israeli officials have warned this tipping point could be reached by the spring or summer of 2013, although experts believe Iran has since slowed its stockpiling of 20 percent fissile uranium to ward off the threat of attack.
Obama said on March 14 that Iran was still more than a year away from developing a nuclear weapon and repeated his assurance to Israel that military force remained a U.S. option.
Israeli officials, who see Iran's nuclear advances as an existential threat, make no secret of the fact that they would prefer to see the U.S. military, with its greater firepower, tackle Iran's far-flung atomic installations. Tehran is improving its defenses and Israel worries that sooner rather than later Israeli warplanes will not be able to destroy this infrastructure. This would mean its own military option would be off the table, leaving Israel utterly reliant on Washington.
The White House believes Israelis have yet to reach a consensus on how to confront Iran, according to a source familiar with the administration's thinking, who added that Obama would stress the need for patience with sanctions and diplomacy. U.S. officials also hope a high-profile recommitment to Israel's security will increase public pressure on Netanyahu to avoid aggravating the situation while negotiations continue.
NO "GRAND PEACE PLAN"
Obama is likely to press both the Israelis and Palestinians to return to the negotiating table, but he told American Jewish leaders in private before the trip that he did not intend to deliver a "grand peace plan" during the visit. Participants said the president did not preclude the possibility of launching an initiative in six months or a year.
The mood was very different at the start of his first term, when Obama said peace between Israelis and Palestinians was a top priority. His 2009 "new beginning" speech in Cairo raised Palestinian hopes of establishing a state in the West Bank, East Jerusalem and Gaza, territories Israel captured in the 1967 Middle East war.
Obama revived direct peace talks in 2010, but they collapsed soon afterwards when Netanyahu refused to bow to Palestinian demands to extend a partial freeze on settlement building.
Both the Palestinians and Israelis felt let down by Obama, for very different reasons. The Israelis begrudged the fact that at the start of his first term, he publicly told Israel to halt all Jewish settlement building, saying this put unfair pressure on Netanyahu to make unilateral concessions.
The Palestinians were furious when Obama then backed away from his demand over settlement construction, saying the peace talks were doomed unless Washington twisted Israel's arm.
Both sides say that without a serious U.S. engagement, the chances of a deal are close to zero. However, few U.S. analysts expect Obama to expend much political capital on an elusive peace accord that has tied up so many of his predecessors.
Netanyahu's new government includes former Israeli foreign minister Tzipi Livni, who will take charge of pursuing peace with the Palestinians. But the presence of fiercely pro-settler elements in the coalition, including within the prime minister's own Likud party, suggests a breakthrough is unlikely.
SETTLEMENT EXPANSION
Israeli settlement expansion lies at the heart of much of the rancor between Netanyahu and Obama, who has said the United States does not accept the legitimacy of continued settlement.
Most major powers regard settlements as illegal under international law and an impediment to peace. The Israelis claim historical and biblical ties to the West Bank and East Jerusalem, home to some 500,000 settlers, and dispute their building in these areas is illegal.
All Israeli leaders since 1967 have backed the settlement movement, but Netanyahu has been especially supportive. Yuval Steinitz, who was replaced as finance minister last Friday, said in November that the government had quietly doubled the portion of the national budget dedicated to West Bank settlements.
In December and January, Israel announced plans to build more than 11,000 new houses on land Palestinians want for a future state. Pro-settler politicians have landed several top jobs in the new Netanyahu government, including the housing minister, who has pledged to keep on building.
Many Western diplomats based in Jerusalem privately question whether the so-called two-state solution, of an independent Israel living alongside an independent Palestine, is still viable given the never-ending expansion of settlement blocs.
Israel's press says Obama has pointedly not invited students from a university in the West Bank settlement of Ariel to attend a speech he is meant to give in Jerusalem this week.
RELATIONS RESET
Relations between Obama, 51, and Netanyahu, 63, have been marked by slights, mutual suspicion and outright antipathy.
Supporters of Netanyahu accuse Obama of trying to browbeat Israel into making concessions to the Palestinians, particularly over the issue of settlements. Obama supporters say Netanyahu interfered in the 2012 presidential election, overtly backing Republican challenger Mitt Romney.
In one Oval Office meeting in 2011, Netanyahu gave Obama a public lecture on Jewish history. A year later, when the Israeli leader visited the United States, Obama said he was too busy to meet him. They will try to reset their relationship this week.
Despite the fact that Obama oversaw ever-closer military ties between the two nations, he has never won the affection of ordinary Israelis, who resented the fact that he did not visit their country in his first term, but did go to Egypt and Turkey.
A poll in the Maariv daily on March 15 said 68 percent of Israelis had an unfavorable or hostile attitude towards Obama, while just 10 percent said they liked him.
Annual U.S. military aid to Israel is put at $3 billion.
UPHEAVAL CAUSES FRICTION
Regional upheaval across the Middle East has proved another source of friction between Israel and the United States over the past two years.
Israeli officials were especially incensed by what they saw as Washington's approval for the ousting of Egypt's former president, Hosni Mubarak, in February 2011. The late President Anwar Sadat signed the Israeli-Egyptian peace treaty, a pillar of Israel's regional security strategy, in 1979.
Seen from Netanyahu's office, U.S. policy-making in the region has been naive and failed to anticipate the rise in power of Islamist forces in one Arab nation after another.
U.S. officials argue that Washington could not have stood in the way of the march of history and believe that dialogue with the new governments that have emerged in the wake of the Arab uprisings is the only way to forge meaningful ties.
Israel would now like to see the United States play a more active role in supporting non-Islamist rebels battling President Bashar al-Assad in Syria, fearful that growing power vacuums in its northern neighbor will be filled by Jihadist militants.
(Writing by Crispian Balmer, Additional reporting by Matt Spetalnick in Washington, Editing by Jeffrey Heller and Peter Millership)
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