Diplomatic normalization with Israel remains closely linked to progress on a two-state solution and Palestinian statehood for several non-recognizing states, particularly Saudi Arabia, which has repeatedly stated that formal recognition requires establishment of a Palestinian state with East Jerusalem as its capital. As of early 2026, 29 UN members still withhold recognition, including multiple Arab League and Organization of Islamic Cooperation countries. No new bilateral recognitions have occurred in the preceding months, and statements from key capitals such as Riyadh and Islamabad indicate recognition is not under active consideration absent broader regional agreements. With the June 30 resolution date approaching, traders assess limited near-term catalysts, as any shifts would require swift diplomatic breakthroughs amid ongoing Middle East negotiations and U.S. policy efforts tied to Iran-related talks.