The right wing of American Orthodox Judaism, those who align themselves with various factions of chareidi and Yeshivah Judaism, are committed to what might only be called “triumphalist Zionism” (my locution, as far as I can tell). Triumphalist Zionists skip the whole cultural and political transformation piece of Zionism and go straight to “now we have an army and its our turn to kick gentile butt.” Most of these groups are extreme hawks on Israeli (and, often, therefore, American) foreign policy. Lubavitch, for example, were exceedingly anti-Zionist through the second world war (as Avi Rivitzky demonstrates in his important book Messianism, Zionism, and Jewish Religious Radicalism). They are also very active in opposing any territorial compromises or peace negotiations.
This process of triumphalist Zionism in the States was followed by the same trend in Israel. Whereas there was some talk that Rav Ovadyah Yosef, former Sephardic Chief Rabbi, (who does not see the settlement movement with the same messianic urgency as does Gush Emunim) would direct his political party Shas to support peace overtures, this did not in fact happen. The same holds true for Rav Shach, the dean of Roshei Yeshivah (Yeshivah heads) in Israel, and his Degel HaTorah party. Shas’ supporters were far more right wing than their leader and Rav Yosef ultimately let the party follow the more hawkish line. Rav Shach (an early mentor of Rav Ovadyah) too, expressed himself in opposition to the settlements, however his hatred of secular Jews and especially kibbutzim won out, with his Degel HaTorah party not supporting the peace overtures of the Labor Party.
It was only a matter of time before the patina of ambiguity toward co-existence cracked and the ramifications of triumphalist Zionism became obvious to all. On the one hand, this ideology afforded the chareidi parties internal justification to join the government as ministers (and ensure funding for their families and institutions), and to be in the heart of policy-making for all citizens of Israel (a seeming compromise with the Zionist project); the flip side of this was that this position of power gave the chareidi parties much political capital. Moreover, the chareidi parties could use foreign/security policy (settlements, wars) as leverage to score more funding for families and institutions (with the tacit and explicit backing of the American Jewish right).
This devil’s bargain has just now blown up again in the face of those Israelis who still see Israel as a Zionist project. This week in the Knesset a bill which exempted certain Yeshivot from the core curriculum that is mandatory for all elementary schools in Israel, passed the first reading. The Israeli High Court ruled three years ago that schools which do not teach the core curriculum can be denied government funding. The core curriculum mandates the teaching of basic civics and democratic values, Hebrew language and literature, English and Arabic, (though this latter is being contested mainly by the chareidim), along with sciences and mathematics, etc. This bill would grant exemptions to certain chareidi institutions (the so-called yeshivot ketanot), which would allow them to be funded by the government without having to teach the core curriculum.
The chareidi community in this latest move, has used its political leverage to undermine any sense of homogeniety or even unity of identity in Israel. This might not be a bad thing: liberal democracies are based on the notion that ethnic and/or religious minorities need not conform to the ideologies of the majority. However, and here is the chiddush, the chareidi parties are using their power from within the supposedly Zionist political institutions (not only Knesset seats, but government ministries) in order to undermine Zionism’s claim to forging a new kind Jewish identity. As Prof. Ruth Gavison wrote yesterday in Ha’aretz:

“It is impossible to exaggerate the importance of this law to the image of the State and the manner in which it educates its young citizens. The law perpetuates a situation in which particular groups receive significant public financing even though the curriuclae of their institutions do not impart to their students the skills necessary to become part of the life of the State and fulfill their part in the activities needed for the survival of the State. The law gives a hechsher [kosher certification] to the ideologies which are the basis of the “their Torah is their craft” arrangement.” (my translation)

This move follows fast on the heels of the Israeli Rabbinate’s declaration that only chareidi conversions are okay, and that converts practicing modern Orthodox Judaism can have their conversions reversed (as Gershom Gorenberg has been assiduously documenting). In the States, Shaul Magid has argued, modern Orthodox high school graduates go to Yeshivah in Israel for a year and then come back alienated from the modern-Orthodox values of their parents.
It would seem then that the vaunted Zionist “return to history” is actually history repeating itself, playing out once again the fight over modernity of eighteenth and nineteenth century Eastern Europe and Germany. The new variable is, of course, political power. The chareidim now have the ability to enforce their own brand of Wahabism. It would also seem that only on Birthright (or the mainstream American Jewish community more generally) is Israel seen as paradigm which provides an answer to question of Jewish identity.