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By Crispian Balmer JERUSALEM (Reuters) - Criticized for settling occupied land and stung by its failure to shape the new world power deal with Iran, Israel must rethink its strategy if it wants to avoid severe diplomatic setbacks in the coming months. Prime Minister Benjamin Netanyahu's fury about the Iranian nuclear accord has exposed Israel's limited reach on the international stage and has coincided with growing frustration abroad over its flailing peace talks with the Palestinians. Traditionally the closest of friends, Israel and the United States now stare at each other with barely concealed mistrust. Some of Netanyahu's allies suggest it is time for Israel to build up relations in other regions, such as Asia, to make sure that all its diplomatic eggs are not in one, American, basket. That might prove a valid long-term plan, but it will not help Israel win its short-term goal of getting Western partners to wring many more concessions from Iran in the next, decisive round of negotiations over Tehran's nuclear ambitions. And it will not help Israel dodge blame, if, as expected peace talks with the Palestinians collapse in early 2014. As an initial step to improve the mood music, megaphone diplomacy and public sniping at U.S. President Barak Obama's administration needs to stop, some Israeli analysts argue. "If we do not change the tone of our discourse, build up the scope of our activities and confine discussion to behind closed doors, then I hate to say it, but we will become diplomatic pariahs," said Uzi Rabi, head of the Moshe Dayan Center for Middle Eastern Studies at Tel Aviv University. And while Netanyahu might lecture the U.N. General Assembly last month that Iran's new, moderate-sounding president was a "wolf in sheep's clothing", Israelis could learn something, Rabi said, from how Tehran used diplomatic tact to its benefit. SOFT POWER Barely had the ink dried on the November 24 accord with Iran, which offered the Islamic Republic limited sanctions relief in return for curbs on its nuclear activities, than an angry Netanyahu denounced what he termed a "historic mistake". His criticism put him at odds with the United States as well as France, Germany, Britain, China and Russia; all approved the deal in the face of heavy lobbying from Israel, which fears Iran will develop an arsenal of nuclear weapons. "We are the ones directly threatened by this, so we have to be the ones doing the warning," Ronen Hoffman, an academic expert on diplomacy, said of Iran's nuclear program. Elected to parliament this year for the centrist Yesh Atid party, which is in Netanyahu's coalition, Hoffman said, however, that Israel's reaction may have been ill-judged. "Maybe we should have been more understanding about the needs of the world to promote soft power rather than jump immediately to military confrontation," he told Reuters. "It is a question of PR and perception." Israel has repeatedly hinted that it would strike Iran if diplomacy and sanctions fail to stop its nuclear progress. It was always a tough prospect to hit distant Iran, but to do so now in defiance of the world's top powers, looks impossible. Netanyahu and his inner circle feel particularly betrayed by Obama, who they believe has repeatedly misread the Middle East. Foreign Minister Avigdor Lieberman has suggested that Israel's historic ties with the United States are weakening. Dore Gold, a former Israeli ambassador to the United Nations and also once an adviser to Netanyahu, said he did not see the special relationship with Washington breaking, but did think it was time to broaden Israel's circle of influence. "There are civilisational ties that run very deep," he said of the United States. "But it is important for Israel to develop diversified diplomatic relationships with many countries around the world, including in the Asia Pacific." Netanyahu visited China earlier this year, but needed to bow to tough demands just to get the invitation, according to Israeli media, indicating the difficulties that lie ahead if Israel is serious about widening its reach. Despite unanimous backing for the Iran deal by all five permanent members of the U.N. Security Council, Gold rejected suggestions Israel was isolated over the issue, pointing to deep discontent amongst Gulf states, including Saudi Arabia. Indeed, Israel's strategic position in the Middle East has improved this year. Civil war in Syria has hobbled one old foe, while the downfall of the Islamist Muslim Brotherhood in Egypt has bolstered its southern flank. But any chance of a public alliance forming between Israel and Sunni Muslim leaders to counter Shi'ite Muslim Iran is rendered impossible by the unresolved Palestinian conflict, which remains a deeply emotive issue across the Arab world. GUILTY PARTY U.S.-brokered peace talks between Israel and the Palestinians resumed in July after a three-year hiatus and were meant to lead to a deal within nine months. Although both sides have acknowledged a lack of meaningful progress, neither wants to walk away for fear of being blamed for the mess. However, in a rare reprimand, U.S. Secretary of State John Kerry condemned this month a wave of announcements of Jewish settlement-building on occupied land, indicating Israel may be deemed the guilty party in Washington in the event of failure. "I mean, does Israel want a third Intifada?" Kerry said in an interview, referring to the danger of a new Palestinian uprising to follow those that erupted in 1987 and 2000. The confluence of the Palestinian and Iranian issues is a source of constant frustration for Israel, which sees the two questions in a very different light - the first representing a threat to its very essence as a Jewish state on biblical lands, the second a grave problem but one it can continue to manage. Yet when Israel seeks international support for its complaints that Iran is not being made to fulfil obligations to the U.N. Security Council to halt uranium enrichment, its critics hit back that Israel itself is ignoring U.N. resolutions, notably those condemning Jewish settlements. "I am worried that we risk being stigmatized by the settlement issue," said coalition lawmaker Hoffman, adding that the only solution was to forge on with peace talks. Tel Aviv University's Rabi suggested that Israel needed to send out an "army of skilled diplomats" to explain to the world the changing dynamics of a Middle East transformed by revolutions in Syria, Egypt, Libya, Tunisia and Yemen. Israel's problems in fielding top diplomats has been highlighted this week in a dispute with the European Union over new EU guidelines that bar financial assistance to any Israeli organization that operates on occupied territory. Negotiations might normally be expected to be handled by Foreign Minister Avigdor Lieberman or his deputy. However, both are West Bank settlers, making them ill-placed to compromise and also illustrating how the domestic priorities of coalition politics can limit the prime minister's room for maneuver. In the end, Netanyahu dispatched centrist Justice Minister Tzipi Livni to talk to the EU foreign policy chief Catherine Ashton. An agreement was reached within hours. "Iran has proved that if you have skilled diplomats, you can achieve almost everything," Rabi said. "Israel needs to understand that, or else we will be left behind." (Editing by Alastair Macdonald)