Israel-Palestine, Obama....and The Australian newspaper

Following President Obama's speech suggesting that Israel-Palestine peace talks should be convened on the premise of a return to the 1967 borders sparked the expected horror in Israeli circles as if this was some sort of ground breaking game changer. And it even led to the remarkable spectacle of the Israeli Prime Minister giving his host (the US President) a public dressing down in the Oval Office see here .
But why should this be at all remarkable to anyone outside the deluded prism of the Israel lobby and its supporters? It's recognised by everyone that it is occupied land and Israeli settlements are clearly illegal by any one's definition.
But as I've argued elsewhere, America has always had within its power the ability to end the Israel-Palestine dispute, just not the political will to do it. Any type of staged withdrawal of their diplomatic (and financial)support will very quickly bring Israel to the table, as Israel is completely friendless without American backing (as the UK, Australia etc would very quickly follow suit). But what would be the political cost to any sitting US President? Can an American President who criticises Israel survive ?....probably not in normal circumstances, and especially not a Democrat. But this is a rare occasion where there is no credible alternative for 2012 so Obama is virtually guaranteed victory.
Despite everything that has been said about Obama, he is still very much an establishment figure who has not deviated greatly from the script of his predecessors, a little more nuanced perhaps, but I don't expect him to push Israel too far on settlements. And really, Obama has not gone that much further than Bush's proposal when he was President, but he should be congratulated nonetheless for at least stating the obvious (which Bush couldn't bring himself to actually say).
So all this now brings us to the pro Israel (and anti Muslim generally) The Australian newspaper, and today's ridiculous editorial read it here which parrots the usual tired rhetoric against the Palestinians (while ironically using the phrase "rhetoric" against them).
Netanyahu (and The Australian) demand that the Palestinians recognise a "Jewish State". Putting aside the blatant racism of endorsing a State based on religion and what that means for it's minorities within its borders, this argument has no legitimate basis when you analyse it more closely.
Does Israel "recognise" a real Palestine as a State? A State with real sovereignty, with legitimate borders, with a military, with its own air space, and the right to defend itself like every other sovereign country? The answer to those questions up to this point from Netanyahu are a resounding NO. So really his challenge to the Palestinians on recognition are nothing more than weasel words. "Recognition" on mutual borders and sovereignty are something to be negotiated between the protagonists, they're not going to the negotiating table as friends, but as mutually suspicious enemies. And it's at this table where these issues have to be decided, not BEFORE negotiations begin.