PRESIDENT Barack Obama hopes to tempt Binyamin Netanyahu, the Israeli leader, into making concessions to the Palestinians by holding out the prospect of a “grand alliance” of moderate Arab states against a nuclear Iran.

The meeting with Netanyahu in Washington tomorrow will be the biggest test of Obama’s negotiating skills on an issue that has tested so many of his White House predecessors. When Netanyahu, a hardline conservative, met President Bill Clinton more than a decade ago, Clinton said furiously: “He thinks he is the superpower.”

Shimon Peres, Israel’s president, told Obama in Washington recently that Netanyahu had changed because of the potential for an alliance between moderate states such as Egypt, Jordan, Saudi Arabia, the Gulf states and Turkey against the growing power of Iran and its sway over militant groups such as Hezbollah in Lebanon and Hamas in Gaza.

However, the Israeli prime minister has continued to oppose a two-state solution involving Israel and the Palestinians, which Obama believes is essential for peace.

Obama has chosen Cairo as the venue for an address to the Islamic world on June 4, partly to bolster the prestige of Hosni Mubarak, the Egyptian president, as a power broker.

“Egypt has seen its role supplanted by Saudi Arabia but also, largely, by Iran,” said David Schenker of the Washington Institute for Near East Policy. “It is the logical country to take a pro-western leadership role.”

Egypt recently announced the arrest of a 49-strong Hezbollah cell in Sinai, although the round-up took place in November. The group was said to be planning an attack on Israeli tourists at Red Sea resorts. The Egyptian authorities have also ratcheted up the rhetoric against Hassan Nasrallah, the Hezbollah leader backed by Iran and Syria.

Leon Panetta, the CIA director, flew to Israel two weeks ago to warn Netanyahu and Ehud Barak, the defence minister, not to surprise Obama with a strike on Iran’s nuclear facilities.

The two leaders are likely to avoid direct linkage between Iran and the search for a peace settlement at tomorrow’s meeting but this quid pro quo will underlie all their talks. Netanyahu is convinced that a nuclear-armed Iran presents a greater threat to Israel than a few tactical concessions to the Palestinians.

Joe Biden, the American vice-president, has called on Israel to freeze Jewish settlements, dismantle checkpoints and allow Palestinians freedom of movement to show it is serious about peace. Netanyahu may be willing to freeze the boundaries of settlements but he might try to wriggle out of a commitment to stop building them, say observers.

There is enormous pressure on Obama and Netanyahu to avoid a clash before the Cairo speech. “Strange as it may seem,” said a veteran Israeli diplomat, “Obama is more dependent now on Netanyahu than vice versa, since one wrong move by Israel towards Iran, Hamas or Hezbollah and the Muslim world will turn against Obama.”

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