New York (CNN) -- Israel's government is missing an opportunity to secure the country's future and build a coalition of nations to counter increasing Iranian influence, according to analyst Fareed Zakaria.





He says the government, headed by Prime Minister Benjamin Netanyahu, is letting the dispute with the United States over expanded settlements in East Jerusalem get in the way of making progress toward resolution of the conflict with the Palestinians.





"The Netanyahu government goes on and on about the existential threat that Israel faces from Iran, the need for the world to mobilize, to put that above all else," Zakaria said. "If that really is the case, shouldn't Israel try to be supportive and deepen the relationship with the one country whose military, political and economic support is going to be absolutely crucial in dealing with this threat, that is, the United States?





"If the Iranian threat were really the overriding threat to Israel, wouldn't it be willing to subordinate other issues and make some progress on the Palestinian issue because it would help the moderate Arab states who also share the worries about the rise of Iran, and would allow the moderate Arab states to form a kind of tacit alliance with Israel?"





Zakaria, author and host of CNN's "Fareed Zakaria GPS," spoke to CNN on Wednesday. Here is an edited transcript:





CNN: In your view, how badly have U.S.-Israeli relations been damaged by the announcement of the East Jerusalem settlement expansion?





Fareed Zakaria: I think by itself this would be a small friction that could easily be overcome, but it comes on the heels of increasingly tense relations between Washington and Tel Aviv, and because of that, it has become larger than life precisely because it seems to be the straw that broke the camel's back for the Obama administration. It became a symbol for the fact that in their view, the Netanyahu government is simply not trying to be cooperative in the search for some kind of movement forward on the Israeli-Palestinian issue.





CNN: And why do they feel that way?





Zakaria: They have been trying to get the Netanyahu government to do something concrete that would demonstrate that they are interested in moving forward, whether it is direct talks, whether it's a settlement freeze or any other such signal that would allow the process to begin moving forward rather than to stay where it is.





So far, the Netanyahu government has done nothing like that, and in fact has taken several steps that would make it difficult to enter into direct negotiations. ... He has within his coalition members of the orthodox right in Israel who still very much hold to a view that the Jewish state should be on most, if not all, of the land of greater Israel, which includes the West Bank. ...This government has probably been the least responsive to concerns from Washington on the issue of the peace process in 20 years.





CNN: The so-called proximity peace talks were delayed as a result of this dispute? Is that a real step backward?





Zakaria: The whole problem with the peace process is that it's sort of going around in circles. I myself think the proximity talks are themselves almost like a bad joke.





They're not actually going to talk to one another. The American negotiator is going to shuttle back and forth between them. We're in 2010.





If everyone agrees that there's going to be a two-state solution and we kind of know what the plan is going to look like, roughly -- which is to say the plan that was largely agreed upon by the two parties in 2000 under the auspices of Bill Clinton -- we are now going back to the most tentative steps of circling around each other, barely talking to one another. It's as if we're at the beginning of a negotiating process when really we should be at the end of one ...





CNN: You've laid out the obstacles on the Israeli side. Are there obstacles on the Palestinian side too?





Zakaria: There are huge obstacles on the Palestinian side: First of all, the divided Palestinian authority --
Which country is Israel countering? What did Fareed Zakaria says Obama administration
Iran, tense relations between Washington and Tel Aviv,
question: Which country is Israel countering?, answer: Iran, | question: What did Fareed Zakaria says Obama administration, answer: tense relations between Washington and Tel Aviv,