From the Asia Times Online:
Not one Muslim government official so much as mentioned the issues that have occupied the bulk of Washington’s attention during the past year, for example, Israeli settlements. The Saudis, to be sure, would prefer the elimination of all Israeli settlements; for that matter, they would prefer the eventual elimination of the state of Israel. In one conversation with a senior White House official, Saudi King Abdullah stated categorically that Iran, not Palestine, was his main concern; while a solution to the Arab/Israeli conflict would be a great achievement, Iran would find other ways to cause trouble.
“Iran’s goal is to cause problems,” Abdullah added. “There is no doubt something unstable about them.” There never has been a shred of evidence that an Israeli-Palestinian agreement would help America contain Iran’s nuclear threat. The deafening silence over this issue in the diplomatic cables is the strongest refutation of this premise to date.
So why the heck have we been so fixated on the settlement issue then? Good question. Go read the article to get one (IMHO) good possible explanation.