Jerusalem ? With prospects for peace talks with the Palestinians looking dim, the talk of this town is whether Israel should start talks with the Syrian regime.

Israel’s Yedioth Ahronoth newspaper reported last week that Deputy Prime Minister Shaul Mofaz was off to Washington to seek America’s blessing for a secret channel to explore peace talks with Damascus. The Bush administration, which wants to isolate Syrian President Bashar al-Assad, has been cool to this idea. After talks with Condoleezza Rice, Mofaz backtracked, saying Israel wanted to give greater priority to peace with the Palestinians.

That’s not what one hears from government sources here.

Israeli officials and intelligence experts downplay any expectations on the Palestinian front. But they’re actively debating whether to try the Syrian option – again.

The prospects are tantalizing but uncertain. Assad, who is allied with Iran and a key supporter of Hezbollah, has been openly proposing peace talks.

Some Israeli experts believe the Syrian leader wants to one-up his more famous father, Hafez al-Assad, by achieving the return of the Golan Heights, lost to Israel in 1967. The younger Assad may also be driven by the fact that Syria’s oil fields will dry up in the next decade, leaving the country in dire need of more foreign investment.

What makes the debate so intense is that no one is certain of Assad’s motives. He may be trying, as Washington fears, to distract attention from an international tribunal trying to discover who killed former Lebanese Prime Minister Rafik Hariri. A U.N. investigation has pointed the finger at the Syrian regime.

Or Assad may be aiming to divert attention from a Syrian military build-up. Israeli officials say Assad signed a memorandum of understanding with Iran in June 2006 in which Iran agreed to fund major arms purchases from Russia. Israeli news sources have reported a Syrian troop and missile build-up along the border. Assad has hinted that Syria might use force if diplomacy didn’t retrieve the Golan.

“Is Assad ready for peace?” one senior government analyst asked me rhetorically. “We don’t have a long-term answer. We aren’t interested in negotiations which give him a cover for a military build-up.”

Indeed, the Israeli military has been leaking dire predictions to the media of possible war with Syria this summer. One scenario predicts that Assad – inspired by Hezbollah’s war against Israeli civilians – might stage a terror attack on Israeli settlements on the Golan. Then, this scenario continues, the Syrian leader could use his bulked-up military to dissuade Israel from mounting a reprisal.

The media speculation about imminent conflict grew so heated that Prime Minister Ehud Olmert felt compelled last week to insist that “Israel does not want war with Syria.” He also warned against miscalculations that might provoke a war.

And still, the tantalizing talk of peace negotiations with Syria continues, embraced by politicians across Israel’s political spectrum.

Some cautions are in order.

First, all the publicity about a secret channel makes one wonder how it could remain secret. Consider the story told me by former Likud Deputy Prime Minister Silvan Shalom about a previous back channel to Syria. In 2003, soon after the Iraq invasion, Shalom sent an envoy, Eitan Ben Tsur, to Amman to meet the Syrian president’s sister, brother, and brother-in-law. News of the meeting leaked, however, and Damascus denied it. Subsequently, Iran became Syria’s protector, and all peace bets were off.

Second, before embarking on a Syria option, Israel should be sure it is ready to pay the price Assad would surely be asking. Israel has come close before to a deal with Syria, but the sticking point always has been the demand for the return of every inch of the Golan.

Last, and perhaps most important, the Syria option shouldn’t become an excuse for evading talks on the Palestinian issue. The Israeli government has shown little interest in the Arab Peace Initiative, promoted by Saudi Arabia, which proposes that all Arab states normalize relations with Israel in return for a withdrawal to 1967 borders. If Israel’s government wants changes to the Arab plan, especially the vague language on return of Palestinian refugees, it should offer a counter-proposal.

At a time when Palestinian institutions are collapsing, and creating a dangerous vacuum, it is crucial that Israel focus on the Palestinian issue. The Arab Initiative is too important to dismiss without more serious exploration. Check out Assad’s offer by all means, but not at the expense of the problem that concerns Israelis most.