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This article argues that Israel's settlement and socio-economic policies have caused internal ethnic and class divisions that now threaten the prospects of JewishPalestinian reconciliation. Furthermore, the association of peace primarily with the interests of Israel's economic and cultural elites has alienated most peripheral groups, particularly the Mizrahi and Haredi Jews. Therefore, the current efforts to arrive at territorial compromise with the Palestinians find Israel in a deep identity and socio-political crisis caused by the consequences of the state's 'ethnocratic' regime. The crisis is born of the surfacing of an overt contradiction, for thefirst time in Israel's history, between two major Zionist goals: territorial expansion and economic growth. This contradiction, and its associated ethnic and class tensions are likely to create obstacles to the ongoing eforts to advance Jewish-Palestinian reconciliation.
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