The Saudi-Israeli obstacle to normalization is a two-state solution: the former CIA

A two-state solution to the Israeli-Palestinian conflict is currently “elusive” according to former CIA Director David Petraeus, adding that it is also the “biggest barrier” to normalizing relations between Israel and Saudi Arabia.

“A solid path, a solid commitment to a two-state solution from Israel” is the biggest hurdle to Israel and Saudi Arabia's normalization plans, Petraeus, who is now chairman of the KKR Global Institute, told CNBC's Dan Murphy.

Saudi Arabia does not recognize Israel as a state and has refused to do so since the Jewish nation's independence in 1948. However, there has been a discreet but growing collaboration between them in recent years, raising hopes for a normalization deal.

Reaching a diplomatic agreement between two of America's most important allies in the Middle East has been one of US President Joe Biden's top foreign policy priorities.

But October 7 changed everything. The Palestinian militant group Hamas infiltrated Israel, killing more than 1,200 people and kidnapping dozens of others.

In response, Israel launched a large-scale military offensive on the Gaza Strip, which Hamas has controlled since 2007. More than 35,000 people have been killed in the Palestinian enclave so far, according to the Hamas-run Health Ministry there.

Saudi Arabia's official position is that it will not open diplomatic relations with Israel unless an independent Palestinian state is recognized.

“The Kingdom has communicated its strong position to the US government that there will be no diplomatic relations with Israel unless an independent Palestinian state is recognized.” The Saudi Ministry of Foreign Affairs said this.

The United Nations classifies Israel as an occupying state over the Palestinian territorieswhose occupations and annexations after the 1967 Six-Day War still violate international law.

While the two-state solution would have a “significant impact” in the region, Petraeus said it is not “that realistic” at the moment.

The two-state solution refers to a broad concept of creating two independent states: one for the Israelis and one for the Palestinians, in an effort to bring peace between the two sides.

Speaking to CNBC on Wednesday, Israeli Prime Minister Benjamin Netanyahu expressed his opposition to the two-state solution, which was first touted by the Oslo Accords and is supported by many international actors.

“The two-state solution that people are talking about would in principle be the biggest reward for the terrorists,” he told Sara Eisen.

Netanyahu emphasized that the Gaza Strip would be “immediately taken over by Hamas and Iran,” and instead defended an outcome in which Israel retains “responsibility for the overall security” over the Gaza enclave.

Petraeus acknowledged that the US has repeatedly tried to leave the Middle East – as evidenced by its attempts to withdraw in Afghanistan, but continues to be “sucked back.”

“This region is far too important for the world, for the global economy,” he said.

“When something bad happens in the Middle East, it tends to spread violence, extremism, instability and in some cases a tsunami of refugees, not just to the region's neighbors, but all the way to the countries of our most important countries . NATO Allies.”

Two of Islam's holiest sites, Mecca and Medina, are also in Saudi Arabia, making it a crucial role in the Muslim world when it comes to the issue of Palestinian statehood.

Saudi Crown Prince Mohammed bin Salman once quoted in an interview that a major bottleneck Towards this normalization was the Israeli-Palestinian conflict.

– CNBC's Joanna Tan, Ruxandra Iordache and Natasha Turak contributed to this report.