The Palestinian leadership is still seeking a political formula to reenter direct negotiations with Israel. There is no doubt that the Palestinians will agree to this, largely because the United States is insisting on it. However, Palestinian President Mahmoud Abbas and his colleagues feel very exposed politically because they have almost nothing to show for diplomatic efforts in the proximity talks and are facing considerable domestic opposition to such a move.

The Palestinians have already squandered valuable credit in Washington by delaying and cannot afford to alienate Washington any further. Their main leverage at the moment vis-à-vis Israel is a new American foreign policy and military consensus that ending the conflict and the occupation is a national-security priority for the United States. This has the potential to provide the Palestinians with a new set of powerful diplomatic tools, but can only be developed and utilized in the context of direct talks.

Even with this new leverage, the Palestinian leadership is convinced that although it has no strategic option other than to enter into direct negotiations, there is very little possibility of serious progress with the present Israeli government. They appear to have secured something of a quid pro quo from the US on the settlement issue since it seems that President Barack Obama made it clear to Prime Minister Benjamin Netanyahu that after the so-called “moratorium” on settlement building expires on September 26, Washington would expect Israel to restrict building to the large settlement blocs and Jewish neighborhoods of Jerusalem, which are generally assumed to be part of a future land swap with the Palestinians.

Israeli Interior Minister Eli Yishai, who leads the hard-line Shas party, recently complained that this was going to be Netanyahu’s de facto policy, no matter what pronouncements are made.

But restraining Israeli settlement activity does not constitute any real progress on final-status issues. Because the Palestinians have no confidence in the seriousness of the present Israeli government or in the willingness or ability of the Obama administration to apply sufficient pressure to change those attitudes, for now the most dynamic aspect of the Palestinian strategy for independence is centered around the state- and institution-building program adopted by the Palestinian Authority in August 2009.

Palestinians conceive of this program as a complementary track to diplomacy, and as the answer to Israel’s settlement project: unilateral changes on the ground but in this case consistent with international law, not challenging any legitimate Israeli interests and promoting rather than hindering peace. The idea is to create the framework of the state in spite of the occupation, in order to end the occupation.

On August 15, the Palestinian Authority published its first annual report on the progress made thus far, and while there is obviously a huge amount of work remaining to be done, the initial efforts are significant: 34 new schools, 44 new housing projects, over 1,000 community development programs completed; the establishment of the nucleus of a Palestinian central bank; the creation of a transparent and accountable public-finance system; and an impressive economic growth rate. This attests to the program’s potential to fundamentally alter the strategic landscape. Ultimately, however, convergence between the bottom-up state-building program and top-down diplomacy will be required to achieve a conflict-ending agreement.

The Palestinian Authority has also launched an impressive new priority intervention in the field of education, which Prime Minister Salam Fayyad has said is crucial to state-building and is “one of the most important criteria for measuring its success.”

Fayyad has outlined three key areas of concern: language skills, including Arabic; analytical capabilities and critical thinking, as opposed to rote learning and memorization; and the use of the educational system to combat rigidity in both thinking and behavior.

This last point is perhaps the most provocative and important, and the example he gave — he described the increasing practice of men and women not shaking hands as not only “accepted but expected” — is an extremely telling one. For here we have a serving Arab prime minister speaking openly about using state educational tools to combat the growing influence of fundamentalist mores that have no real basis in tradition or mainstream Islam. This trend is a key factor in what might be called “the closing of the Arab mind.” Predictably, Hamas was enraged by these remarks, since they are the Palestinian standard bearers for precisely this kind of obscurantism.

So while Palestinians have no strategic choice other than to reenter negotiations, they do so without confidence in early progress. However, in the West Bank they are taking matters into their own hands through the state- and institution-building program, which requires and deserves much more regional and international support than it has received. Not only the Palestinians but also the region and the world have an important stake in helping build a healthy, dynamic Palestinian society and state oriented toward peace and development, one that actively combats obscurantism and extremism.