JERUSALEM, March 31 (JTA) — Things are not as bad as they look, the Israeli government insisted after an American envoy”s latest round of shuttle diplomacy failed to move the Israeli-Palestinian peace process forward. It is “a dramatization” to speak of a crisis or confrontation in the U.S.-Israel relationship, the prime minister”s aide, Uzi Arad, said at the conclusion of U.S. Special Middle East Coordinator Dennis Ross” four-day shuttle. There had indeed been differences of opinion, Arad conceded, but the series of talks with Ross had been “business-like” and the Americans understood Israel”s security concerns. A senior Israeli policy-maker, briefing reporters Monday night, sought to assure them that, despite the present impasse, Prime Minister Benjamin Netanyahu was still moving the country toward a second further redeployment in the West Bank. Behind the facade of business as usual, however, there was some trepidation in Israeli government circles this week as to how Washington would respond to Ross returning empty-handed from what had been widely advertised as a last-ditch attempt to save the faltering peace process. U.S. officials have expressed in recent days the possibility that Washington may decide to withdraw altogether from the frustrating and unsuccessful Israeli-Palestinian mediation effort. Secretary of State Madeleine Albright delivered this apocalyptic scenario in a conference call last Friday with American Jewish leaders. Plainly, her purpose was to influence the unfolding Ross mission. And her words struck home — in banner headlines Sunday in Israel”s newspapers. No one in the Netanyahu government, not even the hardest-line ministers who advised the premier to reject out-of-hand Washington”s proposal, can regard with equanimity the prospect of America publicly turning its back on the peace process — with all the loss of face for Washington that this would mean. A worse scenario still, from the Netanyahu government”s perspective, is another response that is now under active consideration in the White House — a public presentation of the American formula as a formal U.S. initiative. This would mean — unless there is a sudden change of heart in Jerusalem — that the Clinton administration would be knowingly courting a confrontation with Israel. Netanyahu, who has spent several weeks attempting to prevent U.S. officials from going public with their proposal, was quoted Monday as warning that such a move would result in the “explosion” of the peace process. It would mean, moreover, that Washington is prepared to point an accusatory finger at Jerusalem as the recalcitrant party — since the Palestinian Authority has already indicated its acceptance, albeit grudging, of the American terms while Israel continues to reject them. Arad claimed on Tuesday that Netanyahu”s talks with Ross had not “gone into detail” about the specifics of the envisaged further redeployment. Yet even though the reported U.S. plan has not been publicly presented, every newspaper reader in Israel — and the United States — is now intimately familiar with its terms. It calls for a pullback by the Israeli army from an additional 13.1 percent of the West Bank in stages during a 12-week period. The pullback is referred to as the second redeployment even though the first, offered last year by Israel, was rejected by the Palestinian Authority as too paltry and never implemented. During the phased redeployment contemplated by the Clinton administration, the Palestinian Authority would have to prove its commitment to already-signed agreements: drafting a version of the Palestinian Covenant that no longer calls for the destruction of the Jewish state, tightening security controls against terror and enhancing security cooperation with Israel. Ross is also understood to have broached the idea of U.S.-Israeli-Palestinian monitoring of the second further redeployment and also of preparations for the third further redeployment that is called for in the 1995 Interim Agreement. Netanyahu has repeatedly called for forgoing the third further redeployment and instead moving directly into the final-status negotiations. The Palestinian side, eager to have as much of the West Bank under its control before the start of the final-status talks, has demanded that the third redeployment be carried out as prescribed. Netanyahu has reportedly balked at the idea of America”s refereeing the Israeli-Palestinian debate on whether, when and how a third further redeployment is to be carried out. The Palestinians, ever distrustful of the Netanyahu government, are comfortable with the prospect of intensive American participation in the negotiations. While Netanyahu”s office was doing its best to avert the gathering storm clouds, politicians on both sides of the Knesset were busily anticipating their advent. The Labor Party called for the Knesset, which has already recessed for the Passover holiday, to reconvene for an urgent debate on the situation. Earlier this week, Labor leader Ehud Barak had said that if Netanyahu decided to face down his Cabinet hard-liners and agree to the American proposal, Labor would stand by him with the votes needed to counter-balance right-wing defections in a no-confidence vote. But with Netanyahu having apparently decided to side with his hard-liners, Labor and its ideological partner, Meretz, are now warning that the government must be brought down before it leads the country to ruin. The indignation is somewhat compromised, however, by renewed talk of a national unity government under Netanyahu. Chief among the Labor advocates of this course is former Prime Minister Shimon Peres, the architect of the Oslo accords. Peres” argument, in essence, is that Netanyahu would move forward with the peace process if he could; but he is constrained from doing so by hard-liners in his coalition. One of these hard-liners, Infrastructure Minister Ariel Sharon, stayed away from Netanyahu”s fourth, make-or-break meeting with Ross on Monday evening, claiming he was “not a party to the evolving accord”” with the Americans. That rumored accord reportedly entailed Israel”s agreeing to an 11 percent second redeployment and to American participation in negotiations on a third one. Peres” standing is enhanced, in the eyes of the public, by the very fact that he is no longer — ostensibly — in the heart of the fray. On the face of it, if there were a unity government, Peres would not be a senior member of it, since the he is no longer in the forefront of Labor. But seasoned political observers suggest that this may not reflect the full picture. They point to Peres” consistently high ratings in opinion polls, and surmise that if there were a strong movement to create a unity government, that momentum could quickly bring Peres back to center stage as a key minister under Netanyahu. This is not the first time since the May 1996 election that Peres and the people around him have launched a unity balloon. In the past, however, Netanyahu gave little indication that he himself might consider it in his interests to join such an initiative. For one thing, it would presumably mean a rupture with his popular defense minister, Yitzhak Mordechai, whose job would probably go to Barak. But now, say some political observers, with the Israel-U.S. relationship appearing less rosy than the prime minister”s aides bravely maintain, Netanyahu may be giving the unity idea some new thought.