In a remarkable, hard-hitting analysis published by The Jerusalem Post, Diskin, a longtime critic of Netanyahu's policies and an influential figure in Israel's security establishment, warned that the Jewish state is fast approaching "a point of no return" that will inevitably lead to disaster.
"There is no alternative but to enter into a diplomatic process with the Palestinians, here and now, despite the anxieties and the numerous risks," he wrote.
"Without such a process, we will certainly cross the point of no return, after which we will be left with one state from the river to the sea for two peoples," he observed, referring to the Jordan River, the eastern boundary of the occupied West Bank, and the Mediterranean.
In the absence of a two-state solution, the Jewish state and West Bank would be merged into a single state, dominated by Israel and the 400,000 Jewish settlers
But there are widespread concerns that for the 4 million Palestinians in the West Bank, this would be an apartheid state in which the Arabs would be secondary citizens.
"The consequences of such a state, for our national identity, our security, our ability to maintain a worthy, democratic state, our moral fiber as a society, and our place in the family of nations would be far-reaching," Diskin warned.
Many Jews fear that given the higher Palestinian birthrate, Jews would soon be overwhelmed by non-Jews.
The stalemate is widely attributed to Netanyahu's dogged refusal to stop expanding Jewish settlements the West Bank despite repeated entreaties from Washington, or make any meaningful concessions that would restart long-stalled talks.
Despite hopes the 1993-94 Oslo Accords between Israel and the Palestinians would lead to an independent Palestinian state next to the Jewish state, progress toward an agreement has been zero despite the efforts of the U.S. Secretary of State.
There's growing concern that Palestinian frustrations have built up to such a level that a new intifada, or uprising against Israeli occupation, is shaping up.
Twice Palestinians have risen up against Israel, in 1987-93 and 2000-2003. Both uprisings crushed, with thousands of casualties, most of them Palestinian.
Diskin, head of Shin Bet, Israel's domestic security service, in 2005-11; Meir Dagan, former director of the Mossad foreign intelligence service; and former military chief of staff Lt. Gen. Shaul Mofaz have all warned recently that it's just a matter of time before the West Bank explodes.
"We're on the verge of the third intifada," Mofaz declared in January. "The fuel vapor can already be sensed in the air."
The relentlessly expanding settlements, protected by the army, and slicing the territory seized from Jordan in the 1967 war into an archipelago of Palestinian enclaves, have become the central and most inflammatory issue.
Right now, there are 121, some the size of small cities, and 102 unauthorized "outposts" that are tolerated by the Israeli government. These occupy 42 percent of the West Bank.
"The idea that a Palestinian state will be formed in the land of Israel has come to a dead end," Economy Minister Naftali Bennett, leader the hardline Jewish Home part in Netanyahu's rightwing coalition, declared in June.
"Today there are 400,000 Israeli residents of Judea and Samaria" -- the biblical name for the West Bank that Orthodox Jews claim was given to their people by God – "and another 250,000 in eastern Jerusalem."
Kerry has visited Israel five times since March in a so-far futile effort to secure a face-to-face meeting between Israeli and Palestinian leaders. His diplomacy foundered largely on Netanyahu's refusal to halt settlement expansion.
Diskin, along with other military and intelligence figures, is also a fierce critic of Netanyahu's threatened airstrikes against Iran's nuclear infrastructure. He rebuked him on both counts in the Post.
"Whoever is adept at constantly drawing 'red lines' for the Iranians would be better off taking a look at his next-door neighbors rather than those on the other side of the far-off, darkened hills," he wrote, "for doing so would reveal to him that it is here, right here, where we are nearing the point of no return."