Netanyahu's cautious treatment of the event is an obvious effect of the constraints he faces within his coalition. This far right coalition has limited Netanyahu's ability to maneuver politically, and he often walks a fine line between pleasing his coalition and pleasing the United States. Yet the Prime Minister has also hidden behind his coalition in Washington, arguing that they tie his hands with regards to strong action towards peace and linking cleavage between him and his coalition with domestic interference.
To speak frankly from an American perspective, this coalition largely has not advanced US interests. Foot dragging on the peace process, renewing settlement building while Vice President Biden was physically in the country, referring to the President as equivalent to Yasser Arafat, and countless other childish antics have damaged US credibility in the region and constrained its ability to take advantage of the opportunities offered by the Arab Spring. The coalition is applying constant pressure on Prime Minister Netanyahu. The Obama administration should do the same.
Ultimately, the only way to procure positive results from the Prime Minister will be to give him a choice between alienating his coalition or alienating the United States. A JPost editorial today by the conservative leaning Gil Troy illustrates why (case in point - title of article: How Do You Solve A Problem Like Obama). Israelis are no fan of President Obama, but they do not support Israeli alienation from the United States. Prime Minister Netanyahu is savvy and understands this point. That's why after months of foot dragging, he offered the United States a partial settlement freeze in 2009. Given that the plan lacked political capital after so many months, Netanyahu had nothing to lose but US confidence in Israel. Given pressure, the Prime Minister will respond.
In some ways, a tougher line by the United States would give the Prime Minister more leverage of his own. Bibi is conservative but he is far from radical. If the US is interfering with the internal balance of power in Israel, it is only to bring the Prime Minister closer to his own ideological home base in the center right.
Calling loudly for an investigation, trial, and punishment of the perpetrators will send a clear signal to the Arab world that the United States does not apply a double standard in the region. It will show that the US takes Palestinians seriously, and that it is willing to push Israel to hold accountable those who would spoil what little peace and stability exist in the region. Prime Minister Netanyahu has no good excuse not to continue supporting the investigation, and the US should not be persuaded by the argument that it will alienate the Prime Minister from actors who blatantly exacerbate tensions between Israel and the US. Ultimately, pandering to these actors is not in the interest of the United States.
Ultimately, Prime Minister Netanyahu is a rational actor striking constant bargains between two sides. The United States needs to drive its bargain harder. Such an action would be widely supported by the Arab world, international community, Israelis who fear that settlements are delegitimizing Israel, and those who support dialogue over violence.