Israel's election and the Gaza conflict have revealed the scale of the challenge facing U.S. President Barack Obama in jump-starting Israeli-Palestinian peace efforts. Israeli voters tacked to the right, and the government that results from Tuesday's election will be, if anything, even less inclined than the current government of Prime Minister Ehud Olmert to conclude a two-state peace agreement with the Palestinian leadership. (Of course, the year of talks about talks between Olmert and Palestinian Authority President Mahmoud Abbas failed to yield any progress.) Meanwhile, the Gaza war cemented the stature of Hamas as the dominant political force among Palestinians.

Needless to say, there is not much optimism in the region over prospects for peace. But the urgency of resolving the conflict may be greater than ever, as the security situation is likely to see a perilous decline in the coming months. Many members of Abbas' Fatah movement, seeing themselves steadily eclipsed by Hamas, are urging a break from their President's strategy of negotiating with the Israelis and a return to confronting the Israeli occupation in the West Bank. (See pictures of Gaza digging out.)

Fatah leaders see the Israeli election as confirming what they already knew: there's nothing to be gained by continuing the charade of U.S.-sponsored talks about talks with the Israelis. Palestinians could not get what they needed from Olmert, and they know that his successors will take even more of a hard line. From the Palestinian perspective, the past eight years of waiting for negotiations with Israel have left Abbas empty-handed, while the latest Gaza conflict has put Hamas in a stronger position than ever in the court of Palestinian public opinion. Despite the violence by Hamas gunmen against Fatah activists in Gaza since the Israeli offensive, many in Fatah view their movement's only hope of re-establishing a leading role in Palestinian politics as being to join a unity government with Hamas — and begin to directly challenge the Israeli occupation in the West Bank. The fact that such a sentiment coincides with Israel's electing a more hawkish government suggests that the Middle East could be in for a long, hot summer.

The Gaza bloodbath prompted Obama to dispatch former Senator George Mitchell on a listening tour, to signal the new Administration's intent to prioritize peacemaking efforts. But the events of the past six weeks have confirmed that the Israeli-Palestinian peace policy bequeathed by the Bush Administration is dead in the water. If the new Administration is to make good on its promise of progress toward a two-state peace agreement, it will need the sort of thorough policy review currently being undertaken on its Iran policy — and a fresh set of ideas.

President George W. Bush confined himself to promoting symbolic gestures of support for a two-state peace agreement — largely in order to win the support of Arab moderates for the U.S.'s role in Iraq and later for its stance against Iran. A series of photo opportunities, summits and declarations culminated in talks between Olmert and Abbas over what Washington termed a "shelf" agreement — that is, something that would be concluded and then shelved for a better day, when the Palestinian security situation would have been resolved to Israel's satisfaction. But none of this substantially altered the realities of the West Bank occupation, leaving Abbas with little to show for his counseling negotiation over confrontation. Abbas was further weakened and marginalized when reality forced Israel to negotiate truces and prisoner swaps with Hamas — precisely because it was Hamas creating the security challenges that Israel needed to contain.

An independent Palestinian polling organization found last week that for the first time, Hamas has greater political support than Fatah across the West Bank and Gaza and would win any election that were held right now. Aides to Abbas are reportedly concerned that an Israel-Hamas deal to secure the release of the captive Israeli soldier Gilad Shalit in Gaza could involve releasing the Hamas parliamentarians in Israeli detention. The Palestinian legislature is unable to meet because Israel holds those lawmakers. If it were able to convene, Hamas would remain the majority party.

Hamas could, in fact, use its majority to bring down the government of Abbas, but it's unlikely to do that because its own best interests lie in reconstituting a unity government with him. Reports from Cairo, where Egypt is brokering truce arrangements, suggest that Hamas has accepted the idea that forces loyal to Abbas be placed in control of the border crossings into Gaza to allow the crossings to be reopened. And much of Fatah's rank and file is pressing for a unity government — an option that had been forcefully opposed by the Bush Administration. Fatah is due to elect new leadership next month. While Abbas may survive in a titular leadership position, control of the organization is likely to pass to a younger, more militant generation that is more inclined to make common cause with Hamas.

Of course, the Israelis, whether led by the Likud Party's Benjamin Netanyahu or Kadima's Tzipi Livni, will flatly refuse to talk to a Palestinian government that includes Hamas. But that may not deter Fatah, since the movement has gained little by talking to Israeli governments that are plainly unwilling to meet the Palestinians' bottom line. Abbas, even in the eyes of many in his movement, gambled everything on the willingness of the U.S. to press the Israelis to deliver a credible two-state peace solution and lost. Now many of those in Fatah are inclined to bet on a third intifadeh. After all, in the short term at least, the status quo works for the Israelis — as long as there are no missiles raining down on Israel from Gaza. But for the Palestinians, the continued occupation in the West Bank is untenable. And it will not have been lost on Fatah activists that Hamas' more confrontational stance has forced the Israelis, however reluctantly, to the negotiating table, as in the case of the Egypt-brokered Gaza-truce negotiations.

The benign neglect shown on the Israeli-Palestinian peace effort by the Bush Administration won't be an option for the Obama Administration. But the policy pursued by the Bush White House in its final year of isolating Hamas while promoting talks about talks between Olmert and Abbas is no longer viable. Israel has tacked to the right, away from moves toward a solution based on the Arab peace plan for which Obama recently expressed support. The terms of that plan call for a two-state solution on the basis of the 1967 borders and sharing Jerusalem. That Palestinian bottom line, however, is explicitly rejected by the bloc of parties now with a majority in Israel's parliament. And the consensus on the Palestinian side is moving toward a Fatah-Hamas unity government.

Jump-starting an Israeli-Palestinian peace process or simply preventing a further deterioration of the situation will demand a massive effort and new thinking on the part of the Obama Administration. As far as the Palestinians are concerned, progress would require a readiness by Obama to do something no U.S. Administration since that of President George H.W. Bush has done: throw Washington's weight behind positions at odds with those of the Israeli government. And few Palestinians are betting on Obama to turn up the heat on Israel. Instead, they're more likely to try to do so themselves.