Israel last week rejected a proposal by the Biden administration to hold a high-level summit with the Palestinian Authority, three Israeli officials told me.

Why it matters: The Biden administration is trying to create a “political horizon” or diplomatic process between Israeli and Palestinian officials in an attempt to strengthen the PA.

The big picture: Palestinian President Mahmoud Abbas has expressed frustration and warned Israel and the Biden administration about the potential consequences if the stalemate in the peace process continues.

• At the same time, the Israeli government, which was formed by left-wing and right-wing parties on the principle of not taking any major initiatives on the Israeli-Palestinian conflict, can’t move forward with political steps related to the issue.

Driving the news: During a meeting in Washington last week with Israel’s national security adviser Eyal Hulata, Deputy Secretary of State Wendy Sherman raised the possibility of holding a five-way summit between Israel, the PA, the U.S., Egypt and Jordan, Israeli officials said.

• According to the Israeli officials, Sherman proposed the summit of foreign ministers could take place in Washington or in the region.
• Hulata said the Israeli government thinks the conditions on both sides are not ripe for such an initiative and stressed Israel isn't interested in a photo-op that ends with nothing and results in an "expectation crisis."
• “We don’t like this idea. Past experience taught us that such an expectation crisis could lead to an escalation on the ground," a senior Israeli official told me.
• A State Department spokesperson said, "We have nothing to announce."

Behind the scenes: The idea of holding a high-level meeting between Israel and Palestinian officials under the auspices of the Biden administration, Egypt and Jordan had been floated by the White House as early as December of last year.

• For months, Israeli officials didn't give a clear answer about the idea, hoping that it would just die down, the Israeli officials said.
• But when the issue was raised again by Sherman last week, the Israeli government decided to state its position against it more clearly, the officials added.

Barbara Leaf, the State Department’s most senior diplomat for the Middle East, will arrive in Israel this weekend for talks with Israeli and Palestinian officials in Jerusalem and Ramallah, three Israeli and Palestinian officials told me.

Why it matters: A central goal of the visit is to reassure President Abbas that the Biden administration is committed to the Palestinians, a source briefed on the trip said.

Driving the news: Israeli officials said Leaf is expected to arrive in Israel on Saturday. It will be her first visit to the region in her new role as Assistant Secretary of State for Near East affairs.

• Deputy Assistant Secretary for Israeli and Palestinian affairs Hady Amr arrived in Israel today to prepare for Leaf's visit.
• During her visit, Leaf is expected to emphasize U.S. support for a two-state solution, Axios has learned. Leaf will also speak to Palestinian and Israeli leadership about ways to reduce tensions following recent events in Jerusalem.
• A State Department spokesperson said, "We have nothing to announce."

Behind the scenes: The visit follows a tough phone call that took place last week between Secretary of State Tony Blinken and Abbas.

• Abbas is frustrated and furious about the U.S. policy on the Israeli-Palestinian conflict and what he sees as the Biden administration breaking promises it gave him in private and in public.
• "I am done. This is the end," Abbas told Blinken, according to a source briefed on the call.
• The source said Abbas also told Blinken that if the situation doesn’t change, the Palestinians will take retaliatory steps against Israel even if it also hurts them.

Blinken told Abbas he was considering appointing Amr as “special representative for Palestinian affairs," the source said.

• If appointed, Amr would effectively be a “non-resident consul general,” to the Palestinian Authority working from Washington.
• But Abbas wasn’t appeased by the potential appointment. The source said Abbas reminded Blinken the U.S. promised in May 2021 to reopen the consulate in Jerusalem, which was the U.S. diplomatic mission to the Palestinian Authority and was shut down by the Trump administration.

What’s next: The Biden administration is trying to come up with tangible deliverables for the Palestinians ahead of President Biden's visit to the Middle East planned for mid-July in order to reassure them and make sure the visit is a success.

Israeli officials are pushing the Biden administration to remove Israeli cyber spying company NSO from the Department of Commerce blacklist, two Israeli officials and one U.S. official told me.

Why it matters: Removing NSO from the U.S. blacklist would be a dramatic reversal by the Biden administration and would likely be criticized by progressives in the Democratic Party and Congress, as well as many in the cybersecurity community.

Driving the news: A U.S. official and the two Israeli officials said the Biden administration is considering the Israeli request.

• But another U.S. official denied the administration is considering it.

Flashback: In November last year, the Commerce Department added Israeli cyber intelligence companies NSO and Candiru to its blacklist of companies it says are engaging in activities contrary to the national security or foreign policy interests of the United States.

• It was the first time the U.S. government targeted Israeli cyber companies, which receive their export licenses from the Israeli Ministry of Defense.

The Commerce Department said its decision was based on evidence that both companies developed and supplied spyware to foreign governments who in turn used it "to maliciously target government officials, journalists, businesspeople, activists, academics, and embassy workers."

• An international consortium of investigative journalists reported last July that NSO's Pegasus software — designed to track terrorists and criminals — had become a valuable tool for governments to spy on journalists and critics.
• Hungary, India, Mexico, Morocco and Saudi Arabia are among the countries listed in the report as NSO clients.

Behind the scenes: After NSO was sanctioned, there was a debate inside the Israeli government on whether it should lobby the Biden administration on behalf of the company, Israeli officials said.

• Initially, Israeli officials decided against it, but this decision later changed, and the Israeli government started pressing the Biden administration over the issue.
• “We told the U.S. that they can’t destroy NSO and that several bad clients doesn’t mean the company’s products and capabilities are no longer needed," a senior Israeli official told me.
• The Israeli government also told the Biden administration it should have stated clearly in advance what needed to be fixed before sanctioning NSO and given the company an opportunity to make the changes.

NSO hired two U.S. law firms to work on the blacklist issue independently from the Israeli government.

• The lawyers sent a request for an appeal to the Department of Commerce and asked for a hearing, which hasn't taken place. The correspondence continues in writing, an NSO official told me.
• A U.S. official said the White House is not interfering in the regulatory process through which NSO Group is appealing the listing decision.

The U.S. is "deeply concerned" about rising tensions between Lebanon and Israel over their maritime border dispute in the Mediterranean Sea, a State Department spokesperson said.

Driving the news: The dispute over a potentially gas-rich area that Lebanon and Israel both claim intensified after a ship operated by gas exploration company Energean arrived Sunday to begin drilling in an area Israel says is within Israel's UN-recognized exclusive economic zone.

• The arrival of the ship was known long in advance, and Israel had notified the Lebanese government through third parties about its intention to start drilling, Israeli officials told me.
• But when the ship arrived, it generated furious political reactions in Lebanon.

What they're saying: Lebanese Prime Minister Najib Mikati claimed the presence of the ship was “an invasion of Lebanon’s natural resources” and warned it could lead to an escalation.

• Lebanese officials have touted potential oil and gas exploration as a way out of the country's deepening economic crisis.
• Hezbollah’s Deputy Secretary-General Naim Qassem told Reuters the organization is ready to take action "including force" against Israeli gas operations in disputed waters once the Lebanese government adopts a clearer policy on the issue.
• Lebanese President Michel Aoun invited State Department energy envoy Amos Hochstein to come to Beirut urgently to resume talks over the maritime border, which have been frozen for several months

The other side: Israel fired back at the Lebanese reaction, with officials accusing the Lebanese government of contradicting its own past position that this area is Israeli waters.

• In a joint statement today, the Israeli ministers of energy, defense and foreign affairs said the Karish rig "will not pump gas from the disputed territory."
• They added that Israel prioritizes the protection of the rig and is prepared to defend it in accordance with its rights.
• "At the same time, we call on Lebanon to accelerate negotiations on the maritime border," they said.

Meanwhile, a State Department spokesperson said the U.S. is "deeply concerned about the escalating tone and rhetoric" and urges "all to maintain a spirit of creative compromise."

• The spokesperson added that the Lebanese parties should not be using this issue to score domestic political points, saying an agreement is "important for the future of all Lebanese people and for stability in the region."

The big picture: The fresh tensions over the maritime border dispute come several weeks after the Lebanese elections, which slightly weakened Hezbollah’s political power in parliament and strengthened that of its rivals.

• Hezbollah only recently became more involved in the dispute both in private and in public.

What to watch: According to Lebanese media reports, Hochstein is expected to ask Lebanese officials for a formal unified written response to the U.S. proposal that was given to Lebanon but was never answered.

• Separately, Hezbollah Secretary-General Hassan Nasrallah is expected to present his organization’s position on the dispute in a speech tomorrow night.
• Hochstein is expected to arrive in Beirut on Sunday, the Lebanese government added.

Prime Minister Naftali Bennett's coalition suffered its worst defeat since losing its majority two weeks ago when it lost a vote on Monday to renew a law regulating Israeli settlements in the occupied West Bank.

Why it matters: The defeat pushed the fragile government one step closer to collapse and potential new elections.

• The law dictates that Israeli settlers in the West Bank be subject to Israeli law rather than the military law applied to Palestinians. The controversial law is typically renewed easily every five years.

This time, the vote showed how ideology has taken a back seat to personal struggles in Israeli politics.

• The vast majority of the left-of-center lawmakers in Bennett's coalition voted for the law despite their opposition to the settlements in order to preserve the unity of the government.
• But two lawmakers — one from the Arab Ra’am party and one from the left-wing Meretz party — opposed it despite lobbying from Ra'am leader Mansour Abbas and Foreign Minister Yair Lapid.
• Meanwhile, the right-wing, pro-settlements opposition led by former Prime Minister Benjamin Netanyahu voted against the law to destabilize the government. Netanyahu sees this as an opportunity to force Bennett out.

State of play: Justice Minister Gideon Sa'ar, who heads a right-wing party, said before the vote that the government wouldn't survive if it couldn't pass the law.

• After the vote, Sa’ar was more careful and said he won’t topple the government for now and will make another attempt to pass the law next week.
• The legal protections for the settlers will expire at the end of June if the law doesn't pass.

What to watch: If the coalition can survive until the current Knesset session ends in July, that would buy it another three months until the Knesset comes back from recess in October.

The bottom line: Bennett's coalition was designed to end the political instability of the previous two years under Netanyahu, but this week's events make clear that it's very much alive.