It seems fairly likely that the UN general assembly will recognize Palestine as a sovereign state later this year. What does this mean? Since it is the general assembly and not the security council (in which such a resolution would never pass) it doesn't really mean anything. The security council would have the authority as the UN's only super national body to force the creation of a Palestinian state. The general assembly can just say that they believe a Palestinian would be a rather good idea, it has no power to tell a sovereign state such as Israel what to do, only the security council could do that. It would how ever be a PR nightmare for Israel.
So what one might ask, why should Israel be occupying the Palestinian territories in the first place? The answer is that it is necessary for Israeli security. There are basically two types of security threats to the Jewish state. Foreign invasion and terrorism.
The Arab states have attempted to destroy Israel a number of times since its creation. This is what sparked the occupation of the Palestinian territories in the first place. In order to prevent enemy armies from being stationed at walking distance from Israel's cities, Israel occupied a part of Jordan (the West Bank) and a part of Egypt (Gaza) after the six-day war.
This occupation has contributed greatly to Israel's security by moving its previously near indefensible border. But it has also created a new security threat in the form of terrorism. This is not an existential threat like the threat posed by foreign armies but the prospect of having rockets fired in to kindergartens and busses blown up by suicide bombers is something Israel must protect itself from. The occupation while being at least partially the cause of the terrorism has also turned in to a mean for Israel to protect itself from terrorism. The daily rocket attacks that followed the Israeli pullout from Gaza made that clear.
Unfortunately before these two security concerns are satisfied the occupation is necessary for Israel to protect itself. The threat of foreign occupation has lessened as Israel has made peace with Egypt and Jordan but it is still technically at war with a number of Arab states and the Egyptian revolution has also once again raised the prospect of a return to hostilities between Israel and its old enemy. The terrorist groups who routinely try to slaughter Israeli civilians seek not only an end to the occupation but the end of Israel itself. So a Palestinian state would not solve the terrorism problem.
What is needed is a true peace between Israel and the Muslim world as well as an end to terrorism and acceptance of Israel's right to exist. Unfortunately we are no where near achieving this today. A Palestinian state remains incompatible with Israel's need for security and will sadly have to wait.
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