While some on the Israeli side (with many Arab commentators agreeing) will be portraying this as an Israeli win, with Obama weakened and Abbas squaring up to a large helping of humble pie, I think that's a misreading of the current state of play.
Let's take the issue that has received most attention - settlements. Analysts will jump on the fact that a meaningful settlement freeze has not been achieved and that President Obama called today to "restrain" such activity, a seeming climb-down from his previous statements. While it is certainly true that some of the newfound Middle Eastern goodwill toward the U.S. has been squandered by the American inability to deliver a freeze and a price has been paid in America's standing and credibility, something else has also been happening that is likely to prove more significant over time.
By holding Israel's feet to the fire over settlements for a sustained period, America may actually have achieved a great deal in strategically advancing the two-state goal. The most significant effect may be this: Israeli Prime Minister Benjamin Netanyahu's preferred approach was to focus on interim issues and confidence-building measures (CBMs) and to avoid negotiating the core issues (territories, settlements, Jerusalem, etc.) on which his positions are the most unreasonable. In particular, Netanyahu has attempted to advance an economic peace agenda, with his supporters feverishly spinning the idea that the West Bank is becoming an economic paradise. The Obama team has staked out a clear position - items number 1, 2, 3, 4, and 5 on the interim/CBM agenda are entitled "settlement freeze." They have been giving short shrift, including today, to the economic peace narrative (they acknowledge the desirability of progress on the economy and freedom of movement, and should even congratulate themselves that the partial progress made is mainly a result of the heat Israel feels on settlements).
The result: The settlement freeze focus has made Netanyahu's natural comfort zone -- the interim/CBM world -- a prohibitively uncomfortable place to inhabit. So paradoxically, it is Netanyahu who now feels compelled to embrace and prefer negotiations on permanent status end-game issues. That is no small achievement.
In addition, the most right-wing government in Israel's history is, in practical terms, limiting its pro-settlements proclivities, and a tantalizing pivot has been established: namely, that having failed to reach acceptable arrangements on a settlements freeze, the best and obvious alternative is to proceed now to delineate borders. In other words, the territory -- the border component of the two-state deal -- becomes the default solution to what the Americans have established, possibly in a premeditated way, as the never-ending settlement freeze saga.
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