Never mind the global economic downturn: the Holy Land will be the real test of whether Barack Obama can actually walk on water.

The omens do not look good for the Middle East peace process. Benjamin Netanyahu, the man most likely to lead an Israeli coalition government, is joined at the hip with the American neo-conservatives. An Obama adviser recognised that the election result posed a "challenge" for the president.

The question is how much pressure Mr Obama will be prepared to put on the next Israeli government to achieve his stated goal of a Jewish state and Palestinian state living side by side. His special envoy for Afghanistan and Pakistan, Richard Holbrooke, has said he had "never seen anything like the mess we have inherited". If applied to Middle East, that is an understatement. The Bush administration shared the Israeli government's view that the (Arab) moderates should be bolstered and the extremists shunned, a policy that encouraged the civil war between Fatah and Hamas which culminated in the ousting of the Fatah faction from Gaza.

Israel's most recent onslaught on Gaza failed to stop the rockets targeting Israeli civilians, the Palestinian factions are at each others' throats, Israeli illegal settlement building continues and obstructions across the West Bank still constrain attempts to forge a Palestinian economy.

Mr Obama's Middle East envoy, George Mitchell, nevertheless appears undaunted and is preparing for a second trip to the region. Mr Obama took the region by surprise by appointing him at the outset of his presidency, and identified the conflict as a diplomatic priority.

But what kind of peace negotiations does he envisage? Would talks be continued between Palestinians and Israelis, or would it be a broader peace involving Syria and Lebanon, and possibly Iran? On his first trip to the region, Mr Mitchell stuck to diplomatic convention.

But Mr Obama has shown that he is capable of "out-of-the-box" thinking. A senior Arab diplomat said hopes are running high in the Middle East that Mr Obama will succeed. But the same diplomat predicted Mr Mitchell would throw in the towel after six months in the job.