Wanted: Israeli Realism

Daniel Levy makes the case that what Israel needs is a school of "realist" thinking about its policies:

What is missing and needed is for an Israeli school of realism to emerge, capable of addressing the new challenges of the region. This realist school should set out four strategic goals for Israel: to stabilize Israel's security environment; prevent Al-Qaida copycats from gaining a foothold on Israel's doorstep; pursue an end of occupation that will allow for realization of permanent, agreed, recognized and legitimate borders on all fronts; and more effectively isolate the Ahmadinejadist wing in Iran's leadership.

This sounds correct to me. Israel is an interesting place in that it's extremely close -- both chronologically and ideologically -- to its essentially Romantic origins, which seems to make it difficult for the political system to wrestle honestly with what the country is trying to achieve. Is establishing a peaceful relationship with its neighbors a strategic priority, or is it something that might be nice if and only if it can be achieved consistently with other, more important, strategic parameters? If the nuclear arsenal is deemed insufficient to deter the use of an Iranian nuclear weapon, then what's it for?