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significantly undermines the peace process
I'd go with just undermines. On one hand, it shows that Israel wants to hold onto the land, which undermines Palestinian moderates. On the other hand, it adds pressure to the Palestinians to end the conflict before it's too late. I guess we'll have to agree to disagree on this one.
Israel's weakness with respect to being reliant on U.S. "aid."
All indications are that the US will continue its strong support for Israel. But the financial aid, generous as it is, amounts to less than a half of a percent of Israel's GDP. We could get by without it. In fact, I'd like to see it gradually reduced as the peace process continues, for both countries' benefit.
It should be pointed out that, contrary to popular belief, Israel has never been the biggest beneficiary of American aid. Look at the money and troops (something which Israel never even asked for) the US sent (and still sends) to countries during the Cold War, such as Germany, Turkey, South Korea, Taiwan, Greece, etc.
And do you agree that if the United States were to condition their aid Israel on stopping settlement expansion that it would be perceived an intention of getting serious with respect to the Israeli/Palestinian peace process on the part of the United States?
This might sound canned, but it's true: You can't see the US as anything less than committed to a safe, secure Israel at peace with our neighbors.