At dinner in Ramallah recently, amid heaped plates of rice and chicken, a raucous but friendly political debate was going on with the usual arm waving and raised voices.

One of those at the table was a tough-looking young officer in an elite unit of the Palestinian security forces.

He brandished his forearm, declaring: "If you cut my veins open, the blood will fall on the ground to make the word 'Fatah'".

Who was the most important enemy: Hamas or the Israelis, I asked.

Hamas, everyone told me. They had to be dealt with before anything else could be accomplished.

Fatah - the secular nationalists of the PLO - controls the Palestinian-run areas of the West Bank. The Islamist movement Hamas runs Gaza.

A Palestinian state - the declared aim of the Israeli-Palestinian talks launched a year ago at the Annapolis conference hosted by President George W Bush - cannot be achieved until this rift is healed.

The peace process envisages the two-state solution, not the three-state solution.

The Hamas-Fatah blood feud shows how events on the ground habitually overtake the diplomacy, making it both irrelevant and more urgently required than ever.

It is one reason that President Bush's attempt to use his last year in office to achieve a Middle East peace deal has failed.

Another reason is the sheer intractability of the issues: the future of Jerusalem; the fate of Palestinian refugees; the exact border between Israel and a Palestinian state.

By one count, there have been more than 250 meetings between Israeli and Palestinian negotiators - with no outward sign of progress, still less a breakthrough.

'Nearly decision time'

Still, the meetings themselves are an achievement - and better than the alternative.

In his tiny office in the Mukataa, the Palestinian Authority compound in Ramallah, Saeb Erekat, the Palestinian chief negotiator, gestured at a Palestinian flag.

Once, Palestinians were shot for carrying that flag, he said. Now he saw it displayed in the office of the Israeli prime minister, Ehud Olmert, when negotiations were held there.

"Was there progress made [in the talks]? Yes. In all issues? Yes. Can we close on these issues? Is a peace agreement doable? Yes," Mr Erekat told me with dogged optimism.

"If you ask my opinion as a negotiator, I will tell you that we are almost at the stage that decisions are required by decision-makers, not by negotiators."

Mr Olmert is pursuing this effort because he believes that nothing less than Israel's survival depends on it.

He explained why he was trying to bring about a Palestinian state at the memorial for his murdered predecessor, Yitzhak Rabin, earlier this month.

"If we are determined to preserve the Jewish and democratic character of the State of Israel, we must inevitably relinquish, with great pain, parts of our homeland, of which we dreamt and for which we yearned and prayed for generations," Mr Olmert said.

'Price to pay'

But after 40 years of occupation, it looks to many as if Israel is permanently annexing the West Bank.

If so, either the Palestinians must be kept in permanent subjugation, or they must be granted political rights. The first would extinguish Israel's claim to be a democracy; the second would be the end of the Jewish majority in Israel.

But if the only way out of this dilemma is a Palestinian state, why does Israel continue with settlement building on occupied land?

The left-wing Israeli commentator, Akiva Eldar, told me: "Israelis realise that there is no way to keep the [Palestinian] territories... Intellectually they know this, the problem is that politically they are not willing to pay the price."

Since the meeting in Annapolis, exactly a year ago, work has begun on some 1,200 new homes in the occupied territories, according to official figures.

There are now 450,000 Israeli settlers in the West Bank, 180,000 of them in East Jerusalem. Some settlers live on land Israel expects to keep. But many settlements would have to be evacuated under any agreement.

"The government is not doing anything to stop the settlements because there is no price [to pay]," Mr Eldar added. "The government has to decide whether to tackle the settlers or to let down our allies in the West. They would rather let down their allies in the West."

The over-riding Israeli concern is security. Many Israelis argue that they withdrew from Gaza, only to see it used as a launch pad for rockets. They don't want the same thing to happen if or when a Palestinian state is created.

That's why what is happening with the Palestinian security forces is so important. They have been receiving a lot of training from foreign experts. The results of that can be seen in the quieter streets of places like Nablus and Jenin.

The way the security forces have taken charge in the West Bank is one of the few hopeful signs linked to Annapolis. The big issues, however, remain unsolved.

President Bush's plan was always hugely ambitious and, some would say, always likely to fail. But he does leave to the region and to his successor a peace process if not a peace agreement.

The talking will continue. That's more than could be said before Annapolis.