In a quiet street in the Sheikh Jarrah district of occupied East Jerusalem 88-year-old Rifka al-Kurd is explaining how she came to live in the house she and her husband built as Palestinian refugees in the 1950s. As she speaks, three young ultra-orthodox Jewish settlers swagger in to stake their claim to the front part of the building, shouting abuse in Hebrew and broken Arabic: "Arab animals", "shut up, whore".

There is a brief physical confrontation with Rifka's daughter as the settlers barricade themselves in to the rooms they have occupied since last winter. That was when they finally won a court order to take over the Kurd family's extension on the grounds that it was built without permission – which Palestinians in Jerusalem are almost never granted. It is an ugly scene, the settlers' chilling arrogance underpinned by the certain knowledge that they can call in the police and army at will.

But such takeovers of Palestinian homes in Sheikh Jarrah have become commonplace, and the focus of continual protest. The same is true in nearby Silwan, home to upwards of 30,000 Palestinians next to the Old City, where 88 homes to 1,500 Palestinians have been lined up for demolition to make way for a King David theme park and hundreds of settlers are protected round the clock by trigger-happy security guards.

Throughout the Arab areas of Jerusalem, as in the West Bank, the government is pressing ahead with land expropriations, demolitions and settlement building, making the prospects of a Palestinian state ever more improbable. More than a third of the land in East Jerusalem has been expropriated since it was occupied in 1967 to make way for Israeli colonists, in flagrant violation of international law.

Israel's latest settlement plans were not "helpful", Barack Obama ventured on Tuesday. But while US-sponsored Israeli-Palestinian negotiations go nowhere and attention has been focused on the brutal siege of Gaza, the colonisation goes on. It is also proceeding apace in Israel proper, where the demolition of Palestinian Bedouin villages around the Negev desert has accelerated under Binyamin Netanyahu.

About 87,000 Bedouin live in 45 "unrecognised" villages, without rights or basic public services, because the Israeli authorities refuse to recognise their claim to the land. All have demolition orders hanging over them, while hundreds of Jewish settlements have been established throughout the area.

The Israeli writer Amos Oz calls the Negev a "ticking time bomb". The village of Araqeeb has been destroyed six times in recent months and each time it has been reconstructed by its inhabitants. The government wants to clear the land and move the Bedouin into designated townships. But even there, demolitions are carried out on a routine basis.

At the weekend, a mosque in the Bedouin town of Rahat was torn down by the army in the night. By Sunday afternoon, local people were already at work on rebuilding it, as patriotic songs blared out from the PA system and activists addressed an angry crowd.

The awakening of the Negev Bedouin, many of whom used to send their sons to fight in the Israeli army, reflects a wider politicisation of the Arab citizens of Israel. Cut off from the majority of Palestinians after 1948, they tried to find an accommodation with the state whose discrimination against them was, in the words of former prime minister Ehud Olmert, "deep-seated and intolerable" from the first.

That effort has as good as been abandoned. The Arab parties in the Israeli Knesset now reject any idea of Israel as an ethnically defined state, demanding instead a "state of all its people". The influential Islamic Movement refuses to take part in the Israeli political system at all. The Palestinians of '48, who now make up getting on for 20% of the population, are increasingly organising themselves on an independent basis – and in common cause with their fellow Palestinians across the Green Line.

Palestinian experience inside Israel, from land confiscations to settlement building and privileged ethnic segregation, is not after all so different from what has taken place in East Jerusalem and the West Bank. After 1948, the Palestinians of Jaffa who survived ethnic cleansing were forced to share their houses with Jewish settlers – just as Rifka al-Kurd is in Jerusalem today. The sense of being one people is deepening.

That has been intensified by ever more aggressive attempts under the Netanyahu government to bring Israel's Arab citizens to heel, along with growing demands to transfer hundreds of thousands of them to a future West Bank administration. A string of new laws targeting the Palestinian minority are in the pipeline, including the bill agreed by the Israeli cabinet last month requiring all new non-Jewish citizens to swear an oath of allegiance to Israel as a Jewish state.

Pressure on Palestinian leaders and communities is becoming harsher. A fortnight ago more than a thousand soldiers and police were on hand to protect a violent march by a far-right racist Israeli group through the Palestinian town of Umm al-Fahm. The leader of the Islamic Movement, Ra'ed Salah, is in prison for spitting at a policeman; the Palestinian MP Haneen Zoabi has been stripped of her parliamentary privileges for joining the Gaza flotilla; and leading civil rights campaigner Ameer Makhoul faces up to 10 years in jail after being convicted of the improbable charge of spying for Hezbollah.

Meanwhile Israel is also demanding that the Palestinian leadership in Ramallah recognise Israel as a Jewish state as part of any agreement. Few outside the Palestinian Authority – or even inside it – seem to believe that the "peace process" will lead to any kind of settlement. Even Fatah leaders such as Nabil Sha'ath now argue that the Palestinians need to consider a return to armed resistance, or a shift to the South African model of mass popular resistance, also favoured by prominent Palestinians in Israel.

As for the people who actually won the last elections, Mahmoud Ramahi, the Hamas secretary general of the Palestinian parliament, reminded me on Monday that the US continues to veto any reconciliation with Fatah. He was arrested by the Israelis barely 24 hours later, just as talks between the two parties were getting going in Damascus.

The focus of the Palestinian-Israeli struggle has shifted over the last 40 years from Jordan to Lebanon to the occupied territories. With the two-state solution close to collapse, it may be that the Palestinians of Israel are at last about to move centre stage. If so, the conflict that more than any other has taken on a global dimension will have finally come full circle.