Israel has barely put a foot right with the international community since its attack on Gaza more than three years ago provoked global revulsion.

The right-wing government of Benjamin Netanyahu has serially defied and insulted foreign leaders, including US President Barack Obama; given the settlers virtual free rein; blocked peace talks with the Palestinians; intimidated and marginalized human rights groups, UN agencies and even the Israeli courts; and fuelled a popular wave of Jewish ethnic and religious chauvinism against the country's Palestinian minority, foreign workers and asylum seekers.

No wonder, then, that in poll after poll Israel ranks as one of the countries with the most negative influence on international affairs.

And yet, the lower Israel sinks in public estimation, the more generous western leaders are in handing out aid and special favors to their wayward ally. The past few days have been particularly shameless.

It was revealed last week that the European Union had approved a massive upgrade in Israel's special trading status, strengthening economic ties in dozens of different fields. The decision was a reversal of a freeze imposed in the wake of the Gaza attack of winter 2008.

Amnesty International pointed out that the EU was violating its own commitments in the European Neighborhood Policy, which requires that, as a preferred trading partner, Israel respect international human rights, democratic values and its humanitarian obligations.

Equally troubling, the EU is apparently preparing to upend what had looked like an emerging consensus in favor of banning settlement products - the only meaningful punishment the EU has threatened to inflict on Israel.

With some irony, Europe's turnabout was revealed the same day that Israel announced it was planning to destroy eight villages in the West Bank, expelling their 1,500 Palestinian inhabitants, to make way for a military firing zone. Four more villages are also under threat.

The villagers' expulsion was further confirmation that Israel is conducting a "forced transfer" of Palestinians, as recent EU reports have warned, from the nearly two-thirds of the West Bank under its control.

Europe's only real leverage over Israel is economic: business between the two already accounts for about 60 per cent of Israeli trade, worth nearly 30 billion euros. But rather than penalizing Israel for repeatedly stomping over the flimsiest prospects for a two-state solution, the EU is handsomely rewarding it.

It is not alone. The United States is also showering economic benefits and military goodies on Israel, in addition to the billions of dollars in aid it hands over every year.

In the past few days alone, President Obama signed a new law greatly expanding military cooperation with Israel and awarded $70 million – on top of an existing $210 million donation – for it to develop the Iron Dome missile defense system; the Pentagon arm-twisted Lockheed Martin into collaborating with Israeli firms in revamping the new F-35 fighter jet; and Congress approved a four-year extension of US loan guarantees to make it cheaper for Israel to borrow money on the international markets.

Meanwhile, Obama’s rival for the presidency, Mitt Romney, has criticized Obama for being too miserly towards Israel. As he stood shoulder to shoulder with Netanyahu in Jerusalem on Sunday, Romney issued a press release suggesting that his administration would spend even more US taxpayers’ dollars on Israel’s missile defense system.

All this munificence is coming from the two dominant parties to the Quartet - the international group comprising the US, the EU, the United Nations and Russia. The Quartet's role is to champion the very two-state solution Israel is striving so strenuously to destroy.

In a further irony, the World Bank issued last week its latest report on the state of the Palestinian economy, concluding that its situation was so dire the Palestinian government-in-waiting, the Palestinian Authority, could not be considered ready for independent statehood. The report noted that the Palestinians were heavily reliant on foreign donors and that local private businesses, agriculture and manufacturing were all in decline.

With feigned obtuseness, the World Bank recommended that the PA increase exports to foreign markets, glossing over the biggest impediment to such trade: the severe restrictions imposed by Israel on the movement of people and goods into and out of Palestinian territory.

As the Quartet has grown ever more silent in the face of Israeli transgressions, US politicians have stepped in with cynical maneuvers to shore up Israel's intransigence and destroy any hopes of a peaceful solution.

Last week, for example, US lawmakers were reported to have put their names to a congressional resolution recognizing the recent report of Israel's controversial Levy Committee. The report concluded that Israel was not occupying the West Bank and that consequently the settlements there are legal.

The topsy-turvy character of international diplomacy was acknowledged this month by a recently retired British ambassador to the Middle East. Tom Philips, who served in Israel and Saudi Arabia, writes in the latest edition of Prospect magazine that Europe and the US need to use "big carrots and big sticks" if there is to be any hope of reviving the peace process.

But Mr. Philips believes the US is "genetically indisposed" to forcing change on Israel. He proposes instead choking off donor money to the PA so as "to put the full weight of the occupation on Israel, a burden I do not think they would be able to endure".

In another of the rich ironies of the Israeli-Palestinian conflict, it now seems even some diplomats are concluding that the Palestinians will be best served by destroying the fledgling government that was supposed to be the harbinger of their independence.

The real obstacles to peace - Israel, its occupation and western complicity - might then be laid bare for all to see.