"I think if the Palestinian territories remain in misery, this is the worst breeding ground for radicals," said Schütte, deputy head of the Middle East Department at the Federal Ministry for Foreign Affairs in Bonn.
If the Likud Party wins the May 29 election, he added, its policies in the settlements "would be the most important stumbling block" to the success of the peace process.
The Bay Area is the 10th stop in Schütte's 12-city U.S. tour of the past several weeks, addressing mainly Jewish audiences.
Germany's support for Israel is motivated by a bond beyond current European Union politics, he said.
Nazism and the Holocaust "are always a backdrop in [Germany's] relations with Israel and the Jewish people in general," he said.
Today Germany is Israel's second biggest supporter and second biggest trading partner — next to the United States. Virtually every city in Israel has a partner city in Germany. In addition, the two countries share a large student exchange program, and a fair amount of tourism goes back and forth.
Because Germany has consistently taken Israel's side in its struggles with the Palestinians and its Arab neighbors, he said, the Palestinians claimed they have become "the victims of the victims."
During the peace process, as Israel began asking Germany's help in dealing with the Palestinians, Schütte said, Palestinian claims of victimhood died down. Germany gave $180 million in Palestinian aid in 1994 and 1995.
Other European countries do not feel that same sense of obligation to assist Israel in its struggles with the Arabs, Schütte said. Nor are they as involved in seeking business partnerships with the Jewish state.
It is against this backdrop that the European Union is trying to agree upon a unified Israel policy. Israel in turn has sought Germany's help as a liaison with the other E.U. countries and in becoming more active in the European market.
Differences over Iran-Iraq policies remain a stumbling block in moving closer toward that goal. While Israel, the United States and E.U. members have common concerns about human rights and terrorism in the Middle East, they disagree about strategies, Schütte said.
Israel and the United States favor containment, isolation and trade sanctions against Iran and Iraq, while European countries favor continued dialogue and trade — except for weapons.
In Germany, that policy is always under review, Schütte said.