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On the national political level, Israel certainly has some degree of sovereignty. Unlike the situation 2,000 years ago, when Israel was physically living under Roman rule, today Israel has its own state institutions such as a parliament, court system, army, etc. Moreover, Israel maintains diplomatic, cultural and economic relations with countries throughout the world, participates in a variety of international forums, is a member of the United Nations, and more. However, despite the outer appearance of full sovereignty, the last 15-20 years have told another story.
In a progressively more blatant manner, the upper echelon of Israel's political leaders have more or less said, both in words and in actions, that Israel must do as America says, regardless of whether or not this action is good for the Jewish state. Be it in reaction to Palestinian acts of terror, the nature and length of wars in Lebanon and Gaza, the sale of military equipment to China, etc., the deciding factor is whether or not we have the 'green light' from America. Similarly, the near consensus to work towards the creation of a Palestinian state, the 'two-state solution', is sheepishly moved forward with hardly a dissenting voice, despite the obvious dangers to all, simply because this is what America wants.
Apparently for many reasons, chief among them most likely economic and political, Israel's leadership is hesitant, if not frightened, to go against the will of America. They simply fear the consequence of going against a superpower, even one which is relatively losing it dominance compared to other powers in the world. Nonetheless, and despite whatever rationalizations they might have, many of which might be justifiable for various reasons, their open display of unabashed adherence to the demands of American leadership questions the whole notion of our true political sovereignty.
Another example that brought this question to the forefront was witnessed in the recent elections. Rather than seriously addressing the Israeli public about real issues and problems, the leading candidates invested a lot of time trying to prove who would work better with President Barack Obama. Obviously, there is nothing wrong with having good relations with America and its president; however, when this becomes a central issue in Israeli national elections, then certainly our whole status as a sovereign nation state becomes rather suspect.
http://www.israelnationalnews.com/Articles/Article.aspx/8636