Israel in 2013: Six things to watch

This is the second in a series of entries looking at what we can expect in 2013. Each weekday, a guest analyst will look at the key challenges facing a selected country -- and what next year might hold in store.

By Steve Linde, Special to CNN

Editor's note: Steve Linde is editor-in-chief of The Jerusalem Post. The views expressed are his own.

Life in the Holy Land is often intense and seldom boring, and the country has captured the attention of the international news media for almost 65 years. This is not likely to change in 2013. Although Israel has a population of only eight million, almost every day generates unexpected and exciting developments. While journalists are not prophets, I would suggest that there are six key challenges facing the Jewish state in the year ahead:

National elections -- Israel is all set for what promises to be an interesting national election on January 22, with 34 lists registered to run. A strong right-wing list comprising Prime Minister Benjamin Netanyahu's ruling Likud party and Foreign Minister Avigdor Lieberman Yisrael Beiteinu (Israel is our Home) is facing off against a splintered Center and Left that includes, inter alia, Shelly Yacimovich's Labor, the Tzipi Livni Party, Yair Lapid¹s Yesh Atid (There is a Future) and Shaul Mofaz¹s Kadima. Current polls show the now merged Likud-Beiteinu list comfortably ahead, with about a third of the seats in the 120-seat Knesset, Israel's parliament. But with growing discontent over the current government¹s foreign and socioeconomic policies, Likud- Beiteinu may in fact win fewer seats than its two component parties have in the current Knesset (42).

Palestinian conflict -- Israeli-Palestinian peace talks have been deadlocked since September 2010. The present Israeli government does not see the PA's President Mahmoud Abbas, who controls most of the West Bank, as a potential peace partner, because of his unilateral move on November 29 for Palestine to be recognized by the U.N. General Assembly as a non-member state, his refusal to return to the negotiating table and recognize Israel as a Jewish state, and his attempt to reach a unity deal with Hamas, the radical Islamic organization that controls Gaza. President Shimon Peres and the opposition parties on the Left have urged the government to resume negotiations with Abbas, warning that hopes for a two-state solution are fading as both sides dig in their heels and adopt more extremist positions. The volatile situation increases the chances of a new cycle of violence between Israel and the Palestinians in both Gaza and the West Bank.

Arab world -- Much of the Arab world is still reeling from the so-called Arab Spring upheavals that began in December 2010. From Israel's point of view, the most problematic situation is in Egypt, where the Muslim Brotherhood and its leader, Mohamed Morsy, effectively took over after the overthrow of Hosni Mubarak in February 2011. To his credit, Morsy showed strength by brokering a cease-fire between Israel and Hamas last month, but his attempts to suppress democratic reforms are reminiscent of his predecessor. Also of concern is the horrific civil war in Syria, a sworn enemy of Israel, and the chance of the violence spilling over into Turkey and Lebanon, where Hassan Nasrallah's radical Shiite organization, Hezbollah, has emerged as a powerful force that is rearming for another confrontation with Israel.

Iran's nukes -- At the top of Israel¹s external threats, however, is Iran¹s nuclear program.

If, as intelligence reports estimate, Tehran succeeds in building an atomic bomb in the next year, Israel might take military action -- with or without the support of the United States. The current Iranian regime has threatened repeatedly to wipe Israel off the map, and the Jewish state, which sprang up in the shadow of the Holocaust, has vowed to pre-empt such a move.

More from CNN: Fact check on Iran and the bomb

Iran is also the primary sponsor of international terror, supporting Hezbollah, Hamas and Islamic Jihad in their war against Zionism. Although its current President Mahmoud Ahmadinejad is due to be replaced in the coming year, Israel pins little hope on his successor changing course, because he too will have to follow the orders of Supreme Leader Ali Khamenei, who is bent on Israel¹s destruction.

Ties with the U.S. -- Relations with the United States have been strained in recent years, despite the traditionally strong bond between the countries. U.S. President Barack Obama, who is now in his second term, has had his ups and downs with Netanyahu. After the U.S. backed Israel during its eight-day offensive against Hamas in Gaza in November and voted against the Palestinians at the U.N. General Assembly, Netanyahu angered the Obama administration (and other Israeli allies) by declaring after the vote that he planned to build another 3,000 housing units over the pre-1967 Green Line in response to the Palestinians' unilateral action. Although Obama is wary of intervening in the Israeli-Palestinian conflict, unless there is assertive mediation by Washington, the deadlock in the peace process is unlikely to be broken.

The economy -- Economically, Israel faces a series of challenges in the coming year. The most immediate is the state budget. The current government decided this should be biannual, but failed to pass one in 2012. In Israel¹s parliamentary democracy, passage of the budget requires horse-trading between the ruling party and its partners, which often sparks coalition crises. The Israeli economy is, for the most part, robust and resilient, with much-heralded advances in hi-tech, agriculture and medicine. Large natural gas finds off the Mediterranean coast yield great promise, and perhaps lucrative deals with nearby countries such Greece and Cyprus. Within the country, the gap between rich and poor appears to be widening, despite the government¹s adoption of the Trachtenberg Committee¹s recommendations for socioeconomic change following widespread social protests in the summer of 2011. If the security situation improves, Israel can expect foreign investment and tourism to continue to grow.

Israel has a vibrant democracy, judiciary and press. Although it has supporters around the world, it also faces an unprecedented campaign of delegitimization. Perhaps its foremost challenge in the coming year will be to find the right balance between safeguarding its own citizens and securing peace with its neighbors.