The Obama Administration's bid to relaunch an Israeli-Palestinian peace process is falling apart faster than you can say settlement freeze — in no small part because President Obama began his effort by saying settlement freeze. On Monday, Secretary of State Hillary Clinton found herself struggling to persuade skeptical Arab foreign ministers to see the silver lining in Israel's "No, but ..." answer to the U.S. demand that Israel halt all construction in the occupied West Bank and East Jerusalem. At least Israeli Prime Minister Netanyahu was offering to restrain settlement activity, Clinton argued, but Arab leaders, whom Obama had hoped would make reciprocal gestures towards normalization of ties with Israel, were not buying. For Arab League secretary Amr Moussa, Clinton's message offered a grim outlook for the Administration's peace efforts: "I still wait until we have our meetings and decide what we are going to do," Moussa reportedly said Monday in Morocco, where Clinton was meeting with Arab leaders. "But failure is in the atmosphere all over."

Asking the Arab states to accept Israel's offer to simply slow down construction in the West Bank and its refusal to stop building and demolishing Palestinian homes in East Jerusalem — after President Obama publicly and repeatedly demanded it — has battered the Administration's credibility in Arab capitals. And Palestinian Authority President Mahmoud Abbas reiterated on Monday his refusal to heed Washington's call to begin negotiating with Netanyahu in the absence of a settlement freeze. Abbas has promised his public and his own Fatah movement, which is deeply skeptical of the prospects for dealing with Israel's current hawkish government, that he won't return to the table until Netanyahu has signaled his bona fides by halting all construction in the West Bank and East Jerusalem.

Netanyahu has used the Palestinian refusal to engage in unconditional talks as an opportunity to blame them for the impasse in solving the conflict, noting that Abbas spent last year in talks over a two-state deal with Prime Minister Ehud Olmert without ever mentioning a settlement freeze. Why are the Palestinians suddenly making such a fuss about a settlement freeze now, the Israelis ask, as if this signifies a hidden agenda. The Obama Administration appeared to take Netanyahu's side last weekend, pressing the Palestinians to drop the precondition for talking. But the Palestinians point out that they weren't the only ones raising the issue: the Obama Administration, too, had issued an unambiguous demand that Israel halt all construction in the West Bank and East Jerusalem in line with the 2002 road map.

While the Israelis cast Abbas' position as evading peace talks, the Palestinians see Netanyahu's rejection of the settlement freeze as proof that an Israeli government beholden to right-wing settlers won't offer a credible two-state solution. Abbas has been under mounting domestic pressure from both his opponents in Hamas and within his own Fatah party to break with the endless diplomacy with the U.S. and Israel that has brought the Palestinians very little, and has actually helped the more radical Hamas eclipse Fatah. That's why Fatah's leadership, at its recent congress aimed at revitalizing the movement, insisted that Abbas decline talks with Netanyahu before Israel agrees to a settlement freeze.

The growing danger of the U.S. "losing Fatah" was highlighted recently when, in response to Israel's threats to refuse negotiations if the Palestinians backed U.N. discussion of the Goldstone report, the Obama Administration leaned on Abbas to withdraw support for taking up the issue at the U.N. Abbas initially complied, but was forced by a firestorm of criticism from both Hamas and Fatah to quickly change course.

President Obama may have backpedaled on the settlement freeze in the belief that the Israelis had gone as far as they are willing to go, and that no peace can be made without them. His problem, of course, is that no peace can be made without the Palestinians either, and that Abbas' willingness to make do with whatever was on offer from Washington until now has made him an increasingly marginal figure among his own people. Even if the U.S. manages, once again, to cajole Abbas into acting against his own better judgment and restart talks, the achievement will be a hollow one because Abbas would be at the table without the support of Fatah, much less of Hamas and the broader Palestinian public.

With Netanyahu's settlement-freeze defiance having demonstrated the limits of the Administration's ability to sway the Israeli government, President Obama now faces the uncomfortable reality that this has also accelerated the decline of U.S. influence with the Arab states and mainstream Palestinian moderates. Having made resolving the Middle East's most intractable conflict a top foreign policy priority, the Administration now needs the symbolic resumption of talks simply to signal progress. The message from the White House to both sides over the past week has emphasized the urgency of doing that. Unfortunately, given the gulf between the demands and expectations of Israelis and Palestinians, that sense of urgency about getting back around a table may be felt more keenly in Washington than it is in Jerusalem or Ramallah.