Shlaim was born to wealthy Jewish parents in Baghdad, Iraq. The family lived in a mansion with ten servants. His father was an importer of building materials with ties to the Iraqi leadership, including then-prime minister Nuri al-Said.
The Iraqi Jews' situation became problematic with Israel's War of Independence in 1948. In 1951 Shlaim's father was one of 100,000 Jews who registered to leave the country and surrender their citizenship. A subsequent law ruled that all those who left forfeited all rights, including property rights. The Shlaim family lost all their property. His father crossed the border illegally on a mule, while Shlaim, his mother and sisters flew to Cyprus, reuniting in Israel.
Shlaim left Israel for England at the age of 16 to study at a Jewish school. He returned to Israel in the mid-1960s to serve in the Israel Defense Forces, then moved back to England in 1966 to read history at Jesus College, Cambridge. He obtained his MA and married the great-granddaughter of David Lloyd George, who was the British prime minister at the time of the Balfour Declaration. He has lived in England ever since, and holds dual British and Israeli nationality.
He obtained an MSc (Econ.) in International Relations in 1970 from the London School of Economics and a PhD from the University of Reading. He was a Lecturer and Reader in politics in the University of Reading from 1970 to 1987.
Shlaim taught International Relations at Reading University, specialising in European issues. His academic interest in the history of Israel began in 1982, when Israeli government archives about the 1948 Arab–Israeli War were opened, an interest that deepened when he became a fellow of St Antony's College, Oxford in 1987. He was Alastair Buchan Reader in International Relations at Oxford from 1987 to 1996 and Director of Graduate Studies in that subject in 1993–1995 and 1998–2001. In 1995–97, he held a British Academy Research Readership in 1995–97 and a Research Professorship in 2003–2006. In 2006, he was elected Fellow of the British Academy.
Shlaim served as an outside examiner on the doctoral thesis of Ilan Pappé, another notable New Historian. Shlaim's approach to the study of history is informed by his belief that, "[t]he job of the historian is to judge".
He is a regular contributor to The Guardian newspaper, and signed an open letter to that paper in January 2009 condemning Israel's role in the Gaza War.
Writing in the Spectator, Shlaim dubbed Prime Minister Benjamin Netanyahu as a "proponent of the doctrine of permanent conflict," describing his policies as an attempt to preclude a peaceful resolution to the conflict with Palestinians. Furthermore, he described Israeli foreign policy as one that supported stability of Arab regimes over nascent democratic movements during the Arab Spring.
Joseph Heller and Yehoshua Porath have claimed that Shlaim "misleads his readers with arguments that Israel had missed the opportunity for peace while the Arabs are strictly peace seekers".
In a 2012 article in the academic journal Shofar, Shai Afsai criticised Shlaim for repeating a story "The bride is beautiful but she is married to another man", for which Afsai could not trace an original source, in his 2001 book The Iron Wall: Israel and the Arab World.
According to Yoav Gelber, Shlaim's claim that there was a deliberate and pre-meditated anti-Palestinian “collusion” between the Jewish Agency and King Abdullah, is unequivocally refuted by the documentary evidence on the development of contacts between Israel and Jordan before, during and after the war. Marc Lynch however wrote that "the voluminous evidence in [Gelber's] book does not allow so conclusive a verdict".Collusion across the Jordan: King Abdullah, the Zionist Movement and the Partition of Palestine (winner of the 1988 Political Studies Association's W. J. M. Mackenzie Prize)
The Politics of Partition (1990 and 1998)
War and Peace in the Middle East: A Concise History (1995)
The Cold War and the Middle East (co-editor, 1997)
The Iron Wall: Israel and the Arab World (New York: W.W. Norton, 2001)
Lion of Jordan: The Life of King Hussein in War and Peace (London: Allen Lane, 2007)
Israel and Palestine: Reappraisals, Revisions, Refutations (London: Verso, 2009)