In this snappily written book, Richard Ben Cramer argues that Israel has been corrupted by its 37-year-long occupation of the Palestinian territory on the West Bank and Gaza. The occupation has diverted the country from its historic mission—providing “a place where Jews could live the best life … in accordance with their values”—to something less ambitious and admirable. Its energies and spirit sapped by measures to control an embittered foreign population, Israeli life has begun to coarsen.

Some of the consequences are internal: domestic assaults, road-rage killings, school violence are now part of the social texture. The once appealing smallness of the country, Israel as a modern village in which everyone felt mutually connected, is now gone. Gone too are such noble aspirations as the doctrine of “purity of arms,” through which the army tried hard to avoid harming innocent Arab civilians; some of today’s top commanders don’t even pretend to care.

Cramer writes with great empathy about the life Israel has inflicted on the Palestinians, a captive people, shut off from all foreign contacts, locked into a hopelessly uneven contest against one of the best armies in the world. Though seldom voiced in the United States, such arguments are expressed often by Israelis unreconciled to Likud’s policies. In Cramer’s colloquial American idiom, they are sharp and refreshing. The “How Israel Lost” of the title sets down a challenge for admirers of Begin, Shamir, Netanyahu, and Sharon (including, it is now clear, George W. Bush) who would deny that Israel has suffered meaningful loss at all. But Cramer recalls how luminous Israel’s reputation used to be in the United States and in much of the world, and that clearly has been lost. Was that reputation entirely deserved?

“A land without people for a people without land”—this was the most commonly heard shorthand for the Zionist project 40 or 50 years ago. It was popularized in the movie “Exodus,” with Paul Newman as a Jewish underground fighter and “shiksa-goddess Eva Marie Saint as his home-from-the-holocaust honey” (a clause which could come with a “don’t try this yourself” warning). But the “land without people” slogan was an element of what Cramer calls “hasbarah”—Hebrew for “explaining” or spin—and one of the Jewish state’s most successful exports. This bit of hasbarah was a work of genius, as deeply burrowed into the American subconscious in the 1950s and ’60s as (Cramer puckishly notes) “Winston tastes good, like a cigarette should.” Back then, most of America felt part of Israel’s venture.

That sentiment is almost entirely gone. Relatively few believe the land of Palestine was “without people”—and while there is scant perception of moral equivalence between Israel and the Palestinians, no Israeli (or American) leader is now likely to say, as Golda Meir once did, “There are no Palestinians.” Yes, Golda, there are, several million in the West Bank or dispersed throughout the world, many with the keys and title deeds to what were once their families’ homes.

Cramer discovered this for himself in the late ’70s, as the Philadelphia Inquirer’s Mideast correspondent. He arrived buying into the whole hasbarah package, but as he looked around him it began to wear off. He began to write in his paper about the Arabs—who were, quite often, hospitable, dignified, rational, and oppressed. Above all, they were there. His pieces earned him a Pulitzer prize … and several campaigns by committees of Jews trying to lose him his job. “Is it really Ibn Cramer? ” they would ask.

The argument of this book is drawn mostly through the portraits and stories of individual Jews and Arabs. Cramer has a real gift for bringing to life the people caught up in the endless struggle—even, or indeed especially those whose politics are not his own. His portraits are usually sympathetic (Mariam Farhat, the “mother of martyrs, ” a Palestinian woman who has raised several suicide bombers, is an exception); some, like that of Menachem Furman, a charismatic leader a West Bank settlement, are exquisite. The portrait of Yehuda Meshi-Zahav, an ultra-orthodox Jew who has organized the ultra-orthodox haredim to gather body parts of the victims of terror bombings for ritually proper burial, seemed to me journalism as an act of love.

Nonetheless, the backdrop to all these conversations is an occupation that impinges on Palestinian life at every level—shutting off three million largely innocent people. When Sharon completes his fence, Palestinian encirclement will be complete. The most banal journey in the West Bank is determined by Israeli military checkpoints. Cramer describes the trip of one Palestinian man who sets out to visit his elderly mother 30 miles away. He wants to avoid the checkpoints (which can take hours), so he tacks back and forth, up a riverbed, through a town, six separate taxis for the journey. Finally near the end, he climbs up a pile of stones to find an Israeli half-track and a soldier with a machine gun on the other side. Ordered to pull up his shirt to show he wasn’t carrying a bomb, the Palestinian just froze. “Shy?” the soldier asked. “No, I am ashamed,” was the reply. The soldier shrugged and let him pass—the man, whose journey had taken four hours, happened to be the newly appointed Palestinian minister of labor.

Arabs stopped at the checkpoints aren’t always as fortunate as the minister. There is the elderly headmaster of a Palestinian school whom the Israelis regularly force to strip—in order to humiliate him in front of his students. As a Russian Israeli manning the checkpoints explains, “Because the bad attitude—you know? If they are acting like they are good, and we are the bad one. Then, you must show them control.” Then there are other incidents, as when a Palestinian talks back in too fluent Hebrew, protesting against the soldiers who were throwing rocks at his rented car to amuse themselves. For his protest, he was shot in the head at close range.

Two poignant stories function as bookends, demonstrating how the conflict has worn down the morals of both sides. One is Kandil’s, just a boy when the Israeli troops entered his village in June 1967. He noted to his surprise that the Jews didn’t have tails, as he had been taught. Indeed, they seemed friendly enough, and within months Kandil and his friends used to cross the Green Line to play soccer with Israeli kids on a nicely leveled field. He later found employment at an Israeli nature reserve, learned to read and write Hebrew. When the second Intifada erupted, he ignored warnings to stop working for the “Zionist occupier.” One day he was told to report to Palestinian Authority headquarters in Ramallah, where he was taken in and beaten daily for two weeks and hung from a hook during the evenings. Finally he signed a blank sheet paper, which was turned into a confession for informing on Palestinian militants. He was rescued only when Israeli tanks entered Arafat’s compound in 2002.

The parallel tale, similar in spirit though mercifully lacking the sheer brutality, is that of Yossi, an Israeli art dealer from Tel Aviv. With his wife pregnant, Yossi was tempted by the prospect of subsidized housing in one of the new settlements near Jerusalem. But he didn’t quite fit in, preferring not to go out in the evening with his fellow settlers and shoot holes in the hot-water tanks of his Arab neighbors for amusement. An artistic type, he also he didn’t want a prefab house, but one built of stone, by craftsmen. He befriended the Arab artisans who lived nearby. As punishment for this fraternization, the settlement moved his trailer outside the fence. But Yossi found he could get along fine with the Palestinians—eventually proposing that the settlement create a joint kindergarten for Jews and Arabs. It was roughly at this point that the settler kids began saying “the house is unclean” and killed Yossi’s ducks and geese—finally his new house was burned down. Harassment and arson quite clearly do not equal torture, but the two tales are driven by a quite parallel emotion.

During the 1980s, Cramer said he was optimistic about a peaceful solution. Israel could give up the territories, which would involve a fight with other Jews—the right-wing settlers—but they then were few in number. Or it could try to kill or expel millions of Arabs, which was “a tad Nazi-ish.” Or it could hang on to the land and develop a policy of apartheid. The logic of the first choice was compelling—however, a conflict with other Jews was distasteful. But abrupt end of the Cold War and the arrival of a million “Jewish” immigrants from the Soviet Union suddenly made option three possible, at least for a while, and that is what the state has done.

Yet Cramer believes a peace is still possible. Palestinians are not especially religious and not committed to religious-based Jew-hatred; the conflict is entirely about land. Widespread anti-Israeli terrorism began only after Israel committed itself to a wholesale policy of expanding settlements, assassinations, and land appropriation—that is when expansion of Israeli settlement of the West Bank became the driving impulse of the Jewish state.

Cramer is one of the very few authors to deflate the myth of Ehud Barak’s “perfect” peace offer at Camp David in 2000—97 percent of the land, an offer that Arafat rejected as “less than a Bantustan, for your information.” Arafat and his cronies usually appear as self-serving thugs in Cramer’s narrative, and yet on this question the PA chairman had a point. What Barak offered was to keep 6 percent of the West Bank, give the Palestinians 3 percent from some Israeli desert. The so-called nation of Palestine was to consist of three separate ghettos, each walled off by Israeli checkpoints and bases—so a citizen of “Palestine” couldn’t go about his country without Israeli permission. In addition, Israel proposed to keep military bases on the far (Jordan) side of “Palestine” and control of the aquifers and the new nation’s scarce water supply. Cramer acidly comments that the Barak proposal would have allowed Israel to continue the occupation policy under another name, “Palestine.”

And yet, since the issue is territory (and honor), compromise remains possible. It would center on a slogan everyone knows would be a winner—Give Back the Land. Not the land “except for the settlements,” or the land “except for the bases,” but all of it. Of course one can hear all the think-tank experts decrying the idea as simplistic or worse. But I am with Cramer here—such a step would transform the Middle East (and America’s now wretched image there)—and make Israel a better country as well.

This is a wonderful book, courageous and honest—though courage and honesty hardly suffice to make a book good. Cramer has brought Israelis and Arabs alive in his pages, effortlessly passing on to the reader his own deep affections. He writes as a Jew and lover of Israel, but is utterly persuasive in his argument that the occupation is gobbling up the soul of the state.

Scott McConnell is a founding editor of The American Conservative.