(WMR) -- The Israeli government of Prime Minister Binyamin Netanyahu has rejected two of President Obama’s policy planks delivered to an Arab and wider Muslim audience on June 4 in Cairo. Israel will continue to expand its settlements in the West Bank and it will continue to reject independence for Palestine. In fact, Israel’s government has referred to the West Bank as “Judea and Samaria,” an indication that Israel views the illegally occupied territory as annexed to Israel.

Secretary of State Hillary Clinton recently stated that the Obama administration considers its freeze request as applying to East Jerusalem, something that prompted one Israeli government mouthpiece to refer to Clinton’s home state of New York as “Iroquois territory.”

WMR has learned that Obama is now ready to retaliate against Israeli intransigence with a powerful weapon never used previously by any other American president. Informed diplomatic sources tell us that Obama has made it clear that American military aid to Israel will be severely slashed if Israel does not halt settlements expansion in the West Bank.

The first step in such a process would be Obama rescinding a 2007 memorandum of understanding between the previous Bush administration and Israel that ensured $30 billion in U.S. military aid to Israel over the next 10 years. The Obama administration is prepared to tell the Israelis that continued military aid is contingent on a freeze to all settlement activity, including that in East Jerusalem.

However, this approach has pitfalls for Obama domestically. The American Israel Public Affairs Committee (AIPAC) is already marshaling its control over an overwhelming majority of Congress to apply pressure on Obama to think twice about pressuring Israel. There are also signs of a schism developing in the Obama administration between Obama, Hillary Clinton, Richard Holbrooke, and Middle East special envoy George Mitchell on one side and more pro-Israeli elements such as Clinton’s special assistant Dennis Ross, Assistant Secretary of State for Middle East Affairs Jeffrey Feltman, and others taking up a contrary and more pro-Israeli position.

In 1991, President George H. W. Bush and Secretary of State James Baker wanted Congress to halt loan guarantees to Israel over the expansion of settlements. However, the power of AIPAC over the Congress ensured that the Bush-Baker initiative was dead oncarrival.

Some 300,000 illegal Israeli settlers encroached on Palestinian territory since the first Israelis encamped there following the 1967 Arab-Israeli war. The settlers have a powerful voice in the Israeli government -- the racist Foreign Minister Avigdor Lieberman of the Zionist settler party, Yisrael Beiteinu.

Previously published in the Wayne Madsen Report.

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