The Old Dream of a Nation, Like All Nations, Remains Just That: a Dream

Early Zionists used to fantasize about the day when there would be Jewish police, soldiers and judges, when a scattered and persecuted minority would become normal - "like all the nations" - and a free people gathered back to their ancient homeland.

Sixty years from the creation of Israel in 1948, there is much that is both normal and successful about it: 7 million people, the majority of them native-born, live in a developed economy speaking a revived Hebrew language and defended by a powerful army.

Its achievements have been remarkable -in science, agriculture and technology; in forging a democracy watched over by a supreme court with a free media and a diverse civil society.

Yet any balance sheet must calculate the cost of the conflict into which it was born and in whose shadow it still lives. Israel's independence, three years after the end of the Nazi Holocaust, was the Palestinians' nakba or catastrophe - not the physical extermination of millions of people, but war, exile and ruin.

Israel's anniversary celebrations will evoke many memories: ships packed with death camp survivors running the British blockade of Palestine, some going straight to the front lines; Jews arriving from Morocco and Iraq where they had lived for centuries untouched by European anti-Semitism.

This Zionist "melting pot" has produced a people who are no longer Poles or Yemenis, Argentinians or Russians - but Israelis, who today constitute 40% of the world's 13 million Jews.

Still, Israel at 60 is a complex and divided place: religion plays a huge role in a society that is largely secular. Its 20% Palestinian minority - those Arabs who stayed behind in 1948 - are second-class citizens.

Egalitarianism has faded along with the utopianism of the kibbutz. These days the archetypical Israeli hero is no longer the pioneer-warrior but the dotcom entrepreneur.

Links to the global economy, though, have not compensated for the persistence of conflict. True, peace treaties with Egypt and Jordan have broken the circle of Arab hostility. Syria, seeking to regain the Golan Heights, remains a suspicious enemy; Hizbullah in Lebanon is an implacable one. And the occupied West Bank is a patchwork of disconnected enclaves peppered with Israeli checkpoints. The Gaza Strip, though free of settlers since 2005, is an open prison for its 1.5 million people.

Forty years of occupation have brutalized Israelis and Palestinians and fueled international disenchantment as well as Arab and Muslim anger. Denunciation of Israeli "apartheid" and calls for boycotts have created a sense that the state's legitimacy is in question. Few of those who subsume Zionism into the narrative of western colonialism understand that what oppressed the Palestinians simultaneously represented a movement of national liberation for the Jews.

Nevertheless, attitudes have changed. The 22 members of the Arab League today describe peace with Israel as a "strategic choice", suggesting that governments at least can live with the reality of Israel - if it can reach a just settlement with the Palestinians.

Israel's regional military superiority, with unstinting US support, remains unchallenged, though its limits have never been more obvious. Its failures in the 2006 war with Hizbullah still rankle, as does its inability to stop Hamas firing crude rockets without reconquering Gaza. Its atomic weapons are of no use in waging "asymmetric" war.

Between the first and second intifadas there was real hope of reaching a two-state solution along the lines of the 1967 borders, if the dragon's teeth of Jewish settlement could be de-fanged.

Seven years ago, in the dying days of the Clinton administration, agreement came closer than ever. But the subsequent suicide bombings, the separation wall and deepening Palestinian divisions constituted a reversal. Polls show a majority of Israelis and Palestinians back those two states. But only a minority on both sides believe it can be achieved.

Few are confident that the talks launched at Annapolis last November - a "virtual" peace process embraced by two weak leaders - can deliver an historic deal. Israel seems to be trying to "manage" its dispute with the Palestinians, promoting economic development and improved governance in the West Bank to heal wounds. Gaza, the Mogadishu next door to Israel's Silicon Valley, is being left to rot.

If it is too late to resolve this existential conflict Israel's long-term prospects must be uncertain. Political Islam is on the rise and western-backed authoritarian Arab regimes are on the defensive. Iran's nuclear ambitions under a Holocaust-denying leader are an ominous part of the regional backdrop.

So, as Israel celebrates, the old dream of being "like all the nations" has yet to come true.