Eighteen friends gather round a chocolate cake and burst out with "Happy Birthday." After slicing the cake, they joke and chitchat for nearly a half-hour before sitting down in a circle of chairs set up in the living room.

They finally get down to business and, as usual, begin talking congenially about the latest obstacles to peace between Israelis and Palestinians.

But the discussion soon turns to the future of the Jewish-Palestinian Living Room Dialogue Group itself. After overcoming the mistrust that has doomed similar groups — and working together on projects at home and in Israel — members of this nearly 3-year-old South Bay alliance are facing an unusual problem. They have perhaps become too amiable, too comfortable.

"We've gone from having opposing views and arguments — almost being the enemy — to being friends," explained co-founder Libby Traubman of San Mateo. "Now we're so comfortable. Should we keep meeting? What's the point?"

These questions were something the founders never expected to confront.

Traubman and her friend, Carol Kittermaster of Belmont, decided to form the grassroots dialogue group after successfully helping to bring 10 Palestinians and Israelis to the Bay Area in 1991 to write an unofficial peace proposal.

"We thought: What if we tried our own experiment?" Traubman said.

At first, the meetings were hostile, as the group of local Jews and Palestinians vented their anger and frustration about Middle Eastern history and politics.

"People were feeling almost desperate to be heard," Traubman recalled. "Listening was hard."

Some of the original participants dropped out, believing the atmosphere was too tense or dismissing the effort as meaningless. But with time and the help of a facilitator, members started trusting one another and uniting in their desire to support a nonviolent resolution to the Israeli-Palestinian conflict.

"What was once all politics is now human," said group member June Levin of Hillsborough.

The mix now includes about 20 American-born Jews and Palestinian Christian immigrants, as well as about 10 others — mostly spouses who don't fit into either category. The members are mostly South Bay professionals and business owners in their 40s to 60s.

Members share personal history and viewpoints, as well as confront divisive issues such as the peace process, Jewish settlements, terrorism, Israel's security needs and Islamic fundamentalism.

The members, self-described as left of the political mainstream, agree on the need for a separate Palestinian state. But that doesn't mean they find common ground on every issue, especially the future of Jerusalem.

Elias Botto of San Mateo, who joined the group two years ago, said he isn't bothered by disagreement.

"After 40 years of conflict and bitterness, I think the time has come for our people to start to dialogue," said Botto, a Jerusalem native who immigrated to the United States in 1954. "If we don't agree, it doesn't mean we should become enemies."

They also have done more than just talk. On July 1, for example, the group sent $1,350 in cash and $20,000 worth of medical equipment to two hospitals, one in the Gaza Strip and another in western Jerusalem.

Members also have written two letters supporting peace to American and Middle Eastern leaders; sponsored a public dialogue on the peace process at a San Mateo senior center; set up an information booth at a Palestinian culture day; and sent a member to speak at a San Mateo synagogue.

As a result of these public appearances, another South Bay dialogue group formed earlier this year.

In many ways, the current frustration among some group members shows just how far they've come — and reflects similar emotions in Israel and the territories. Three years ago, it was enough just to meet and discuss the issues.

Nahida Salem of Belmont made her first Jewish friends through the group and learned that all Jews don't think alike. Now, she wants the group to tackle more concrete projects.

"I'm kind of disappointed. We just kind of meet and talk," said Salem, who was born in Ramallah and immigrated to the United States in 1968.

As a result, members are searching for ways to test their limits and influence more people.

By chance, all the group's Palestinian members are Christian. So the group plans to further its dialogue by inviting Muslims to speak. In addition, the group wants to hear from radicals from both Palestinian and Jewish contingents.

The group also hopes to reach out to the Palestinian and Jewish students at San Francisco State University, where tensions between the two factions remain high. Perhaps, members say, a dialogue group like their own might do some good there.

But as long as the dialogue group sticks together, members don't plan on forfeiting their modus operandi of talking, talking, talking. As long as Jews and Palestinians are talking, members believe, there will always be a prospect for real peace.

"Our goal," Traubman said, "is not to give up hope."