It seems a long time ago now, but there was a time when Israel was not only the Middle East's only democracy but a source of liberal inspiration. The kibbutz movement was a living example of how to build a new society based on genuine equality of opportunity and mutuality of respect in collective democratic communes that actually worked. I remember friends who had spent their gap year working on them eulogising about the experience. That was then.Today, Israel's kibbutz movement is in crisis as a succession of right-wing governments has redirected subsidies to support settling the West Bank, where settler numbers are now double those working on kibbutzim.  The movement is paying the price for clinging to outdated nostrums, like belief in caring, equality and collective action, building Israel within its pre-1967 borders while recognising a Palestinian state and valuing the endless possibility of human development.   Like the rest of what constituted the once noble Israeli Labour movement, it has been shattered by the cruel marriage of religious and free-market fundamentalism. There is no more room for visionary ideas about building an Israel that will be a beacon for humanity whatever their faith. Israel is engaged in a fight to the death.  The resulting brutalisation of Israeli society is no more vividly demonstrated than by the overwhelming opinion poll support - 84 per cent - for building Sharon's security wall. It is a wall the International Court of Justice, supported by last week's non-binding vote in the UN's General Assembly, considers illegal because it will effectively annex up to a third or even a half of the Palestinians' current territory.  Indeed, even Israel's Supreme Court, in a reminder of the ideals upon which Israel was founded, has insisted on a review of where it is built. But Prime Minister Sharon can bark his defiance at the world, confident of the scale of domestic support.  Yet the evidence from history is that walls may look like the act of the strong; in fact, they are the last throw of the weak. Israel has come to a desperate pass if it clings to this as a solution to anything.  The trouble is that the liberal Israel, which might have offered a different vision, has been engulfed by Israel's religious zealots, with their insistence that it is Jewish destiny, warranted by biblical injunction, to create a Jewish state that will comprise all of the West Bank. The liberal secular traditionalists within Palestine, and with whom a genuine peace bargain might have been struck, are also beleaguered by fundamentalist religiosity.  Arafat's alleged corruption sparked the violent protests in Gaza last week, but it is not just about his personal failings; it springs from the deep factionalisation within Palestine, as terrorist groups grounded in extreme fundamentalism insist on no quarter, suicide bombing and permanent intifada.  The objective is the annihilation not just of Israel but all Jews. Arafat's Fatah movement is driven into its laager; terrorist groups like Hamas are in another.  In western Europe, secular liberals wrestle with how to integrate Muslim communities into our societies to end discrimination. At the same time, Muslims insist we must recognise that their faith - with traditions and practices that we sometimes find hard to accept - is central to their identity.  Even in Britain, with its tradition of religious toleratance, some can find this difficult. For instance, discrimination against women cannot be justified as part of faith-based identity. Many of us are not sure how to square concepts of faith-based identity with citizenship and equal rights.  Imagine the dilemmas in Israel. There, liberals face a double whammy: they have to negotiate with uncompromising Islam to secure recognition of Israel's right to exist, while their religious right is engaged in a project of overt colonisation, oppression and systematic abuse of human rights. Unable to make any advance on the first, they can offer no alternative to the second.  Professor Avi Shlaim, a Middle East expert, argues that such is the weakness of the Israeli liberal tradition that there has never been a real chance of Israel retreating to its pre-1967 borders, the precondition for peace, and the key reason why both the 1993 Oslo accords and Ehud Barak's apparently generous offer of West Bank territory at Camp David in 2000 ultimately got nowhere.  Yet Arafat has never been able to hold a united Palestinian position together for long enough for Shlaim's thesis to be proved; collapse into Palestinian terrorist attacks has been near instantaneous. Into the breach have stepped Sharon, the wall, unilateral entrenchment in the West Bank and the prospect of decades of violent stalemate.  The impact on Israeli liberalism has been profound. Jo-Ann Mort, co-author of Our Hearts Invented a Place: Can Kibbutzim Survive in Today's Israel?, shows how influential the kibbutzim once were in creating a secular Israeli morality, even in the armed services, and so meeting Martin Buber's aim - one of the secular founders of the movement - of Israel contributing to the development of humanity.  It is a receding dream.The decline of Kibbutzim is mirrored by the political disarray on the left. At the last elections, Labour won only 19 seats in the 120-seat Knesset. Benny Morris, historian of Israel's war crimes and an iconic left-liberal thinker, now believes that David Ben-Gurion should have expelled the Palestinians from the West Bank in 1948 and that negotiation is impossible with Islamic fundamentalism. In this kind of environment, Israeli liberalism is wilting to the point of extinction.  This may be a cause of satisfaction to Israel's religious right and to Hamas alike; from its point of view, the more Israelis unite behind the concept of fortress biblical Israel, with all its dire economic and political consequences, the better.  But therein lies the rub. The religious fundamentalists on both sides of the divide want to extinguish their own secular, liberal traditions and those of their opponents because they are the peaceniks. Appealing to their respective gods, they can get on with the business of grinding each other down. Their only common belief is that secular Europe is soft and amoral.  As the US right becomes ever more in the grip of Christian fundamentalism and ever readier to support fundamentalist Israel and Islamic fundamentalism spreads throughout the Arab world, Europe has a duty to hold the line. Religious war, creating hell on earth for some impossible heaven in the afterlife, is a disaster.  Ultimately, both communities will look one day to their secular liberal traditions to broker peace - with Palestine given a fair share of the land and access to holy sites that everyone knows is the only solution. Europeans must try to keep that flame alive. The Israeli liberal left, however bleak it may look now, must do the same.  At its best, Israel is a noble idea, but it will never flower as a society of religious zealots behind a wall.