The Obama administration tried to jump start the Israel-Arab peace process and inject new energy into additional areas of US activity in the Middle East by instituting a settlement freeze in the West Bank. Regardless of the words Obama's people have chosen to soften the impact, this initiative has failed. The immediate fallout is the apparent resignation of Palestinian Authority President Mahmoud Abbas (Abu Mazen) and an inability to get final status negotiations moving again.

This drama is unraveling against an extremely complicated backdrop of variable factors that makes it difficult to assess not only where we might be going, but even where we are today. Most of the question marks are on the Palestinian side.

We don't know whether Palestinian elections will really be held on January 24. If they are, we don't know who will run. If they aren't, Abu Mazen may remain Palestinian president indefinitely. We don't know whether Hamas will yield to the January 24 ultimatum and sign on to Egypt's proposed Palestinian unity framework, thereby postponing elections (and leaving Abu Mazen in office) until June--if indeed Fateh and Hamas can successfully negotiate all the modalities of the unity framework by then. We don't know whether and under what leadership the Palestinians might, as indicated by various press leaks, seek to obtain international recognition of their statehood aspirations and create a dramatic new fait accompli.

In stark contrast, we cannot be certain that Abu Mazen's departure, coupled with the absence of final status negotiations, won't lead to the outbreak of a new intifada that radically reduces the likelihood of any political process. Nor do we know whether Hamas will, failing a unity agreement, sit quietly by or fall back on violence of its own to sabotage West Bank elections, the selection of a new Palestinian leader or, for that matter, renewed Israeli-Palestinian negotiations.

On the Israeli side, there are two significant unknowns to factor into our assessment. We don't know whether PM Binyamin Netanyahu has embraced the two-state solution merely as a tactic to deflate American pressure, or has truly understood the vital need to create a viable Palestinian state in order for Israel to survive as a Jewish state. In other words, we don't know whether he would take a peace process, if and when we get there, seriously. And we don't know how heavily Abu Mazen's threat of departure weighs on Netanyahu; my guess is that Netanyahu himself, who lives politically from day to day, doesn't really know either.

Then there is the American side. Did the Obama administration really think that "engagement" would be sufficient to generate a settlement freeze? Did it really believe a settlement freeze would be sufficient to create a successful peace process? Having failed, will it now radically revise its approach? Secretary of State Hillary Clintons' announcement (after the embarrassment of welcoming Netanyahu's settlement freeze feints as "unprecedented") that "baby steps" would now be invoked does indeed look like a radical revision--a kind of bottom-up approach that seemingly dovetails nicely with both Netanyahu's "economic peace" and PA PM Salam Fayyad's "two-year state-building" program. But this is hardly sufficient to satisfy Palestinian and other Arab political aspirations, and it is not likely to persuade Abu Mazen to remain in office.

If Washington now has something more dramatic in mind, such as a move to create a Palestinian state unilaterally within the 1967 borders, we may soon find out. If such a new initiative is handled as ineptly as the settlement freeze, Netanyahu has a lot less to worry about than Abbas.

This brings us to the crux of the interaction among Washington, Jerusalem and Ramallah over the settlement freeze. Netanyahu's success in deflating the settlement freeze demand and Abu Mazen's threat to resign over it reflect a far more astute understanding of the Washington scene and how to manipulate it by Netanyahu than on the part of the Ramallah leadership.

This is hardly the first time the Palestinians have been outfoxed by Israel in Washington. Yet they still don't get it. They still don't understand that in an era of Arab disarray and impotence, and particularly when confronted by a less than coherent new American policy departure, their smartest strategists should be traveling to Washington, not (with all due respect) to Cairo, Amman and Riyadh.

The real lesson of the settlement freeze fiasco concerns who understands Washington better, Netanyahu or Abu Mazen.