WASHINGTON—In late December, President Trump’s aides had a decision to make about his long-delayed Middle East peace plan. Israel was headed for an unprecedented third set of elections, leaving an interim government running the country—and no consensus leader to serve as Washington’s partner on its peace plan.

Administration officials knew they had no prospect of Palestinian support, so they had long believed they needed a firmly established Israeli government to join them in unveiling the plan. But chances of that evaporated…

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