The aftermath of the Persian Gulf war confronts Israel with crucial test of its leaders' seriousness about peace and willingness to take political risks.
On the positive side, Israel gained worldwide praise for its restraint in not retaliating against Iraqi Scud missile attacks, and the war demonstrated emphatically that the United States is serious about its commitment to Israel's security.
But the new warmth in its ties with the United States has been tempered by familiar haggling over how much Israel deserves to be compensated for the added costs it incurred during the war. Agreement was reached last week on a $650 million deal; Israel originally had asked for $1 billion.
And reliance on American defense took a toll on the pride of a small nation that has never asked another to fight its battles.
Meanwhile, international pressure to settle the Palestinian conflict, pushed to a back burner for seven months so as not to reward Saddam Hussein, is mounting. This is coupled with what Bush administration officials say is a ripe opportunity for trying to end the state of war between Israel and the Arab states that cooperated in crushing Iraq.
The Bush administration plans to tackle both issues simultaneously, attempting to bridge the Israeli demand for a willingness among Arab states to make peace and the Arabs' insistence that the plight of Palestinians take priority.
It hopes Israel and Syria could be brought to the table to work out a deal on the Golan Heights.
Israel has reacted negatively, insisting that the Golan Heights are part of Israel. But it is now talking about pursuing "confidence-building" agreements with Arab states over trade and water rights without demanding full-fledged peace.
Moderate Arab states such as Saudi Arabia and Kuwait are now disenchanted with Yasser Arafat's Palestine Liberation Organization, with which Israel has refused to deal. It remains to be seen whether new leaders emerge acceptable both to Israel and the Palestinian people.