To the vast majority of external observers, the primary issue facing Israel is the Palestinian issue. The continued growth of settlements, the growing strength of Palestinian radicals, and the dramatic rightward shift of Israeli politics all point toward a closing window of opportunity for a two-state solution. To the vast majority of Israeli observers, the primary issue facing Israel is Iran and there’s a powerful, if somewhat odd, desire to believe that the Palestinian problem is basically an epiphenomenon of the conflict with Iran. US policy ought to be sensitive to Israeli concerns on this front, since it’ll be very difficult to get them to move on the Palestinian issue if they’re terrified of external threats. But at the same time, I really think the Israelis have this backward—the IDF is perfectly capable of deterring and defeating the Iranian, but the Israeli nuclear program isn’t going to protect them from a total collapse of international legitimacy.
I think that's almost exactly right. Israel is suffering from a bout of statecentrism, and it is not serving it well. Though I don't think we should just ignore Iran, Israel is in a perfectly fine position to deter that state if it makes any offensive moves. Its ability to deal with the threats posed by Palestinians is much weaker, simply because it is difficult to effectively use conventional military force when dealing with an urban insurgency. Not to mention, of course, that much of its problems with Palestine aren't really military/security ones at all, but are demographic and democratic. Making it clear that as far as we're concerned, Palestine is the central focus of our relationship with Israel is a good starting point for getting the Israel government to take it seriously as well.