UNRWA Balata Refugee Camp, 2003.

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While the world’s headlines focus with exaggerated alarm on Israel’s lifting of its ten-month building freeze within Jewish West Bank settlements, an issue of far greater moment for the prospects of peace in the Middle East goes determinedly unaddressed. This is the matter of the “right of return” of Palestinian refugees-a subject on which the Obama administration, a fierce promoter of the building freeze, has been strikingly silent.

In Cairo a little over a year ago, President Obama proclaimed “a new beginning between the United States and Muslims around the world.” After reminding his Arab audience that “six million Jews were killed” by the Nazis, he added immediately that, for their part, the Palestinians too “have endured the pain of dislocation” and many still “wait in refugee camps… for a life of peace and security that they have never been able to lead.” At the time, a number of commentators objected to the President’s seeming equation of the abundantly funded refugee camps run by the United Nations with Nazi death camps. Few, however, pointed out that his explanation of the plight of the Palestinian refugees was false, confusing historical cause and effect.

For it is not the absence of peace that keeps Palestinians “waiting” in refugee camps. Rather, most Arab leaders since 1948, including the current Palestinian leadership itself, insist that the refugees-originally numbering between 500,000 and 750,000 but now swollen through natural increase to over four million-must remain in those camps until allowed to return en masse to Israel. This insistence in turn makes it impossible to achieve any resolution of the Israel-Palestinian conflict, let alone a “new beginning” in the Middle East.

A few years ago I briefly visited the Balata refugee camp with its 20,000 residents. The camp is inside the West Bank city of Nablus-that is, within the jurisdiction of the Palestinian Authority (PA). It is where many of the Arabs of Jaffa settled when they fled the armed conflict that flared up immediately after the November 1947 UN partition resolution dividing Palestine into separate Jewish and Arab states. Most of Balata’s current residents are the children, grandchildren, and great-grandchildren of the original refugees. Thus, a new baby born in Balata today is still designated by the United Nations Relief and Works Agency (UNRWA) as a refugee dislocated by the 1948 Arab-Israeli war and hence entitled to substantial material benefits for life, or at least until the conflict is settled. That infant will grow up and attend a segregated school run by UNRWA. In UN schools and cultural clubs financed by American tax dollars, Balata’s children, like the children in similar camps in Gaza and neighboring Arab countries, are nurtured on the myth that someday soon they will return in triumph to their ancestors’ homes by the Mediterranean Sea.

While awaiting redemption, Balata’s Palestinian residents are prohibited, by the Palestinian Authority, from building homes outside the camp’s official boundaries. They do not vote on municipal issues and receive no PA funding for roads or sanitation. As part of Prime Minister Salam Fayyad’s “economic renaissance” and state-building project, a brand new Palestinian city named Rawabi is planned for the West Bank near Bethlehem. But there will be no room at the inn for the Balata refugees. Sixty years after the first Arab-Israeli war, Balata might accurately be defined as a UN-administered, quasi-apartheid, welfare ghetto.

This historical and political absurdity-unique in the experience of the world’s tens of millions of refugees displaced by modern war and political conflict-helps explain why Palestinian President Mahmoud Abbas walked away from the best deal his people have ever been offered. It happened in November 2008, when Ehud Olmert, then the prime minister of Israel, presented him with a detailed map of a future Palestinian state that, with land swaps, would constitute close to 100 percent of the territory of the West Bank and Gaza prior to the June 1967 war. Olmert also offered to divide Jerusalem, enabling the Palestinians to locate their capital in the eastern half of the city. The only thing he would not agree to was a right of return for Palestinian refugees-for the obvious reason that this would mean the end of the Jewish state.

As I have reported elsewhere, Abbas, promising to come back for further discussions, took the map to his Ramallah office for his aides to study. But he never returned with the map, and this was the last time the Israeli and Palestinian leaders met. The reason, I believe, is clear: if Olmert’s offer had ever become the basis of serious negotiations, Abbas would have had to admit to the residents of Balata and the other refugee camps on the West Bank that their leaders had lied to them for 60 years and that they were not returning to Jaffa. Among those leaders was Abbas himself, who in his 2005 campaign for the PA presidency declared repeatedly that he would never bargain away the Palestinian refugees’ right of return.

Today, two years later, face-to-face meetings, brokered by the Obama administration, are again being held between Abbas and an Israeli prime minister. But just like the Abbas-Olmert meetings, the current talks will go nowhere until Washington recognizes that the official Palestinian stance on the refugees presents a far more serious obstacle to Middle East peace than the issue of construction within Jewish West Bank settlements. The latter is no more than a complication, while Palestinian insistence on the right of return is a deal breaker.

Why not, at long last, break up the awful refugee camps and encourage their residents to integrate themselves into West Bank civil society? The rationale for doing so is not merely political expediency. There is an overwhelming human-rights imperative to deal with the issue now. For the past decade, an array of peace and human-rights groups has been protesting Israel’s “brutal” West Bank occupation and the military checkpoints restricting the movement of innocent Palestinians. Now, many of the checkpoints have been closed, and Palestinians are building their economy and policing their own cities. In these circumstances, where are the human-rights advocates demanding that the Palestinian refugees be freed from their crowded camps, allowed to build their own homes anywhere on the West Bank, and permitted to send their children to regular Palestinian schools? Why aren’t peace demonstrators marshaling outside the Balata refugee camp with signs saying, “Mr. Abbas, tear down this wall”?

Somehow one doubts that the Palestine Human Rights Campaign or other like-minded groups will undertake such protests. But what does that say about their bona fides as advocates of peace? Does it not powerfully suggest that for them, as for Arab leaders throughout the Middle East, the welfare of suffering Palestinians has been of far lesser import than the demonization, if not the weakening and destruction, of the state of Israel?

Sol Stern is a contributing editor of City Journal , published by the Manhattan Institute.