Arab-Jewish relations within sovereign Israel have reached an unprecedented crisis. Discrimination against Arabs and the lack of any hope for a two-state solution have pushed Arab-Israelis into the arms of their brethren east of the Green Line, fighting for independence. In some ways, this could provoke a return to the pre-Israeli statehood situation.

The Israeli government perceived the Tel Aviv terror attack of Jan. 1 as a strategic warning. Gunman Neshat Melhem was driven and inspired by nationalistic and religious motives; hence the dilemma in the Cabinet room must have been whether this was an isolated incident, or the beginning of Arab-Israeli involvement in a wider Palestinian national struggle against Israel. It appears the government was already worried about the latter: The day before the attack, the Cabinet had announced a 15 billion shekel ($3.8 billion) socio-economic development plan for the Arab sector.

Prime Minister Benjamin Netanyahu is worried and has every reason to be. Yet, this did not stop him from making racist incriminations at his Jan. 2 eulogy on Tel Aviv's Dizengoff Street following the attack. “I am not prepared to accept two states of Israel, a state of law for most of its citizens and a state within a state for some of them,” he said, equating the entire Arab-Israeli population with the attackers.

Netanyahu understands the need to tackle the significant socio-economic gaps between Israeli Jews and Arabs, yet, for fear of being perceived by his right-wing base as leaning toward Arabs, he conditioned the 15 billion shekel development plan to the Arab sector on greater legal compliance regarding building permits and firearm possession. Economic assistance in exchange for greater loyalty to Israel is his hidden motto. Still, the support for the Arab sector — to the degree that it materializes — is a far cry from the government's development investment in the rest of Israel, not to mention the West Bank settlements. Furthermore, Netanyahu appointed right-wing Likud Ministers Yariv Levin and Ze'ev Elkin, not exactly pillars of liberal democracy, to be responsible for establishing nationalistic conditions before any development resources are distributed to the Arab sector.