He is a former leader in the rightist Likud Party who for decades staunchly believed that the West Bank and Gaza Strip belonged to the Jewish people and that the territories, along with the Golan Heights, should remain part of Greater Israel forever. Along with former Prime Minister Ariel Sharon, Ehud Olmert gradually came to understand that this was a fantasy. They broke away from Likud and created the centrist Kadima ("Onward") Party three years ago. Now, as Olmert hands the reins to Tzipi Livni and leaves office amid a corruption scandal, he's made a series of stunning departure statements that form a swan song of historical importance. Peace advocates, Israeli dreamers, Arab skeptics and U.S. mediators in a future McCain or Obama Administration should read his words carefully and take note.

The political lame duck's views expressed in interviews and public comments reveal the sweeping reversals that have taken place among some of Israel's ultra-nationalists. Olmert says Israel should withdraw from "almost all" of the West Bank and Golan Heights. A former mayor of "the undivided capital of the Jewish state," he now advocates dividing Jerusalem with the Palestinians. He wants to keep some of the Jewish settlements that adjoin Israel's pre-1967 border but accepts giving the future Palestinian state Israeli territory in a land swap with a "close to 1-to-1-ratio." "The notion of a Greater Israel no longer exists," Olmert says, "and anyone who still believes in it is deluding themselves."

True, these are not radical views. Former Labour PM Ehud Barak put something like this on the table at Camp David negotiations with the Palestinians eight years ago. What Olmert is saying today broadly conforms to the thinking of Israeli Labour politicians, mainstream Palestinian and Arab leaders, and U.S. officials, as well as the international community. What is important is the source, content and context of Olmert's statements.

Olmert is no Arab-loving pacifist. As Prime Minister, he ravaged half of Lebanon in 2006 in a military offensive after Hizballah killed and kidnapped Israeli soldiers. He has unmercifully turned the screws on Hamas-controlled Gaza. Olmert's comments reflect a profound shift toward realism among Israeli rightists, akin to what Palestinian and Arab nationalists started going through three decades ago, when Israel was in the prime of its strategic strength. The shift is evident not only in Olmert's prescription for a peace settlement, but also in his severe critique of a righteous Israeli mind-set that has turned out to be self-destructive.

"Forty years after the Six-Day War ended, we keep finding excuses not to act," Olmert says. "We refuse to face reality ... The strategic threats we face have nothing to do with where we draw our borders ... For a large portion of these years, I was unwilling to look at the reality in all its depth." Saying Israel would not attack Iran unilaterally to stop Tehran's nuclear program, Olmert scoffs, "Part of our megalomania and our loss of proportions is the things that are said here about Iran. We are a country that has lost a sense of proportion about itself."

Olmert is by no means agreeing to a surrender. Yet, after Israel's failure to impose its will on Arab opponents by force over four decades, he's crying uncle. "We invested our mental resources and thoughts in 'how to build Judea and Samaria,' yet history made clear to us that the state of Israel has other realistic and viable options," he says. "The state of Israel's future won't be found in intermixing with the Palestinians, but rather, is to be found in unpopulated regions that are desperate for our entrepreneurship and innovation."

Palestinian demands, Olmert is acknowledging, won't go away. Recall, the Likud Party, with which Olmert made his career, always refused any dealings with the PLO or even to recognize its demands for Palestinian independence. Indeed, Sharon invaded Lebanon in 1982 with a grand vision of redrawing the Middle East map with no place for a Palestinian state. The expansion of Jewish settlements in the West Bank proceeded rapidly in the ensuing decades. With his about-face, Olmert effectively acknowledges that the Palestinian uprisings of 1987 and 2000 succeeded in forcing Israel to address Palestinian rights. Everybody, including Camp David host Bill Clinton, loved to blame Yasser Arafat for the collapse of the peace process. When Sharon succeeded Barak as Prime Minister in 2001, he began implementing a unilateral vision of a settlement by ending Israel's occupation of Gaza. Yet for the last year, at the tragically belated coaxing of the Bush Administration, Olmert, who replaced the ailing Sharon in 2006, has been quietly engaged in a revival of negotiations with Arafat's successor. Like Olmert's willingness to enter those talks, his swan song amounts to an admission that Israel never went quite far enough in accommodating the Palestinians' basic requirements for peace.

The realism behind Olmert's change of heart is of tremendous import, summed up by one sentence: "The international community is starting to view Israel as a future binational state." In other words, forget about Iranian President Mahmoud Ahmadinejad's threats to wipe Israel off the map. Echoing views he initially expressed in 2003, Olmert reasons that without an Israeli withdrawal from the West Bank, the Jewish state faces the self-inflicted, mortal danger of being destroyed by demographics, overwhelmed by Muslim and Christian Arabs demanding political representation. Olmert fears that the international community could ultimately favor a one-state solution, thus spelling the death of the two-state partition that has been at the core of an acceptable Israeli-Palestinian solution for decades. "Time is not on Israel's side," Olmert says. "I used to believe that everything from the Jordan River bank to the Mediterranean Sea was ours ... But eventually, after great internal conflict, I've realized we have to share this land with the people who dwell here ? that is, if we don't want to be a binational state."

In the liberal Israeli newspaper Haaretz, Aluf Benn disparages the Israeli Prime Minister's "epiphany," saying "Olmert is an excellent commentator, but he lacks the firmness to execute his ideas." Sadly, that seems to be the case. Yet Olmert, on the eighth anniversary of the second Palestinian intifadeh, has done history a valuable service by puncturing some myths about the Israeli-Palestinian conflict. If future negotiators, as well as American mediators, abandon their fantasies as Olmert has done, a peace that truly benefits all parties is much likelier to come.