Ties Turning Sour

 Transcript from The Situation Room aired March 24, 2010

There have been several major crises in U.S./Israeli relations since Israel's independence back in 1948. The Eisenhower administration threatened Israel with a cut-off of U.S. assistance and with United Nations sanctions unless it withdrew from Sinai and Gaza following the 1956 war with Egypt. After Israeli/Egyptian peace talks collapsed in 1975, Secretary of State Henry Kissinger announced a quote, "reassessment" of U.S. policy toward Israel, creating a major chill at the time. President Ronald Reagan suspended military aircraft shipments to Israel following its air strikes against the Iraqi nuclear reactor and Osiraq back in 1981. Reagan's U.N. Ambassador Jeane Kirkpatrick was told to vote in favor of a United Nations Security Council Resolution condemning Israel. And in 1992, when Israel refused to stop settlement construction on the west bank, President George H.W. Bush and his Secretary of State, James Baker, threatened to block billions of dollars and loan guarantees for Israel, so there is a history of what is going on right now.

Let's bring in CNN's John King. He's the host of "John King, USA" which airs right after "The Situation Room." getting ready at the top of the hour. Also joining us David Gergen, our senior political contributor/analyst as well, and Mary Matalin is joining us from New Orleans, our political contributor.

You've covered this story for a long time, so have I, John. there have been tensions. I suspect they're trying as desperately as they can, the Obama administration, to get a commitment from the Israeli government to stop construction of new housing units, not only in the west bank but in East Jerusalem. So far, they haven't gotten that commitment.

JOHN KING, CNN's John King, USA: They have not gotten that commitment. They want the Israelis to say whatever happens in Jerusalem is subject to final status negotiations. Stop the construction. Get back to the bargaining table. They also want some other concessions and statements from the Israeli government directly from the Prime Minister to create a climate where the Palestinians would be willing to come back to those conversations. Wolf, I think you have to go back to the George H.W. Bush administration to have the depth of mistrust between the United States and the Israeli leadership to be where it is now.

And I spoke with the Israeli diplomatic source that Ed mentioned a few minutes ago. He said the Prime Minister was closeted with a few close aides and phone calls back home to people in his very conservative coalition trying to find some maneuvering room, and he said, we really want to rebuild trust with President Obama. Rebuild. I mean, they concede it's broken, but he also said, quote, "They're asking us to do the impossible." So, the Prime Minister clearly feels he has very little room to maneuver because of his own very tough domestic politics.

BLITZER: That's because as you know that coalition government that the Prime Minister has, he has a lot of right-wingers in that coalition and that government could collapse if he were to make a promise to stop construction of new housing units in East Jerusalem.

DAVID GREEN, CNN SENIOR POLITICAL ANALYST: Wolf, he clearly has a very fragile coalition. And, you know, as part of his coalition that made the surprise announcement by Joe Biden was there, the hardliner in his own coalition. So, that clearly is a problem. There are many American-Jews who also feel, ones associated with APAC, that no Israeli Prime Minister with any government would make all the concessions that the Obama presidency has been -- administration's been asking. So, we put them in an impossible position to start with. They feel they then said no.

They, then, feel President Obama backed down. President Obama clearly is not willing to back down as much this time. And I totally understand that. But I think this is heading for -- the chemistry between Benjamin Netanyahu and Barack Obama has never been good. And now, I think there's a real breakdown between the administration and the government, and they've got to get it back together soon.

BLITZER: Mary Matalin, you served in the Bush administration. You worked very closely with Vice President Cheney. How do you think the president -- what do you think of the way the president is handling this crisis right now?

MARY MATALIN, CNN POLITICAL CONTRIBUTOR: Going back to George H.W. Bush and that level of conflict or as John referenced, this is a different time. There are larger issues. The peace plan is one thing. I think this is an impediment. I think to say that this didn't send any signals, that's either disingenuous or naive or ignorant, of course, it did. And yes, BB (ph) has his politics, but we have larger issues than we did in those other times where there is distress and that is Iran. So, this undermines obviously Israel and this impartiality relationship, it's not impartial, always tips against Israel, but the larger issue of Iran, this sends a bigger signal to a global effort or undermines the global effort to get what we need to do relative to Iran's nuclear ambitions.

BLITZER: What are you saying, Mary, that because of the tension between the United States and Israel, this sort of encourages Iran to do what they're doing? Is that what you're saying?

MATALIN: I'm saying in the broader world where we're all -- when Israel is in such jeopardy and the larger Arab world, many in the larger Arab world, do not see this -- are taking advantage of this impartial or moral equivalence approach to the peace talks. They are leveraging this to distract from the -- what we need to do and have a global effort to do in cooperation to do to sanction or whatever we need to do to stop, slow down, impede, hopefully eradicate, this Iranian threat. Israel's on the front line, but this is much bigger, and we're in a different situation than we were in previous years.

And, you know, at the end of the day, Israel is our friend. It's a critical, strategic ally, and it's clear what Obama's doing, but it's slightly ham-handed. You can have your secretary of state do what she did and ream him out and everybody got the message. But this is a -- this is one of those chicken fights that's not good for us and --

BLITZER: There has been a new development. I've been covering the story for a long time, a new development, last week General David Petraeus, when he testified before Congress, he's the head of U.S. Military Central Command, which oversees the Middle East, he made the point that, you know, U.S. military interests are at stake in this inability to solve the Israeli/Palestinian conflict because so many people in that part of the world associate the United States with Israel, and they blame the U.S. for what Israel may or may not be doing in East Jerusalem or the west bank. KING: And that's one source of the administration's frustration. You remember the big Cairo speech, the president hope to improve the U.S. image in the Arab world, and they think this is the key to it and has been the key to it for generations. Could you try to get some progress in the Israeli/Palestinian dialogue to create a different security environment in the region? One of the point that I find fascinating, Wolf, you've been covering this longer than any of us, in the past, it has always been the politics of Israel that if the U.S. president is mad at you, that causes you problems at home.

The Israelis think this a little different, because unlike President George W. Bush, President Bill Clinton, and going back in time, Barack Obama, while he's popular in most places around the world, is not popular in Israel and that complicates this because Netanyahu may have more room to maneuver here at home and not have to be so compliant with the White House demands.

GREEN. Very quickly. I think what Mary's comment and your comment just illustrate how much we're on a knife edge. If we're too tough on Israel, it complicates the situation to kind of get our solution with Iran. If we're too easy on Israel, General Petraeus just telling us it threatens our troops. That's the knife's edge. That's why this is the hard --

BLITZER: That's why we'll stay on top of this story. John will be back right at the top of the hour, "John King, USA.". He's got a big guest at the top of the hour.

KING: The Treasury Secretary Tim Geithner, and a fascinating conversation we're going to have about the economy, about the China challenge, and many other issues.

BLITZER: Right at the top of the hour, "John King, USA." Thank You.

KING: Thank you.