In these early days of December, Prime Minister Binyamin Netanyahu took time off from his seemingly endless negotiations with both the Obama administration and his own coalition over the terms for a renewed settlement-construction freeze. Netanyahu was totally immersed in Israel's biggest-ever natural disaster, a mega-fire on Mt. Carmel. Friends, neighbors, even semi-enemies--countries as diverse as the Palestinian Authority, Turkey and the United States--all gallantly helped Israel fight the fire.

It's easy to forget for a day that Israel has become dangerously isolated internationally, that the broken peace process with the Palestinians is a critical factor in that isolation, and that Washington's effort to "fix" the process is critical. Yet the issues at stake are much too important to neglect for long.

There are many reasons why this process is broken. Most are local: the quality of leadership on both the Israeli and Palestinian sides, geo-political realities like the West Bank-Gaza split and the militant Islamist threat, the toxic interaction between Israel's political system and the Palestinian issue, a weak Arab state system that offers little real support for the process, etc. But one external factor stands out: the Obama administration's failed peace strategy.

Nearly two years into Barack Obama's presidency, little in that strategy appears to have changed or evolved. An Israeli settlement freeze that parallel's PA state-building achievements remains a pre-condition for negotiations. The process, once started, will focus on a comprehensive end-of-conflict agreement to be achieved within a year, maybe two. Gaza is largely ignored, with a prayer that Hamas won't spoil things. A parallel process with Syria, which could conceivably contribute to smoother Israeli-Palestinian talks, is held hostage to Netanyahu's obstinacy and US demands from Damascus regarding Lebanon and terrorism.

Most recently, those negotiations over conditions for restarting final status talks based on a brief renewed freeze--clearly a tactical matter--have been escalated to comprise US-Israeli understandings over seemingly major strategic issues like Jordan Valley security and additional stealth attack aircraft for Israel. Even this incredible bargain has become hopelessly entangled in Netanyahu's coalition politics.

But suppose a deal eventually is struck and negotiations resume. Considering the identity of the prospective peace partners, there is not the slightest possibility the talks will succeed. What can the administration possibly hope to achieve this way?

Perhaps the most tragic aspect of this mess is that it's not just another failure on a long list that goes back 15 years or so. There is an alternative course of action at hand that, at the diplomatic level, is being largely ignored by both the Obama administration and the Netanyahu government.

The PA's state-building effort in the West Bank, which until now has been admirably financed and technically assisted by the US and the European Union, is moving into its diplomatic endgame, as Palestinians and the Arab League prepare to ask for United Nations recognition of a Palestinian state within the 1967 lines. Given the failure of a negotiated process, such an appeal is more than likely to actually happen by next fall. This combination of unilateralism and internationalism presents Israel, the US and the Arab world with either a golden opportunity or a major crisis.

An opportunity, because creation of a Palestinian state by the UN could, if handled intelligently, turn the Israeli-Palestinian conflict into a state-to-state negotiation over borders, security, water and the fate of settlements, with the deal-breaking issues of refugee right-of-return and "who owns the Temple Mount/Harem al-Sharif" postponed and put into proportion. Israel could leverage its readiness to contemplate this scenario into real strategic advantages in its relations with the US and even with several Arab countries, while Washington could leverage its readiness not to veto such a solution in the Security Council into major Arab concessions to Israel. The PLO appears to agree to postpone the deal-breaking issues unilaterally and cease holding the entire process hostage to them, in a way that it cannot be seen to be doing at the bilateral level.

But all this will become a major crisis if the US, bowing to Israeli demands, ends up vetoing this two-state solution, thereby prompting tension with the Arab world and a new outbreak of Palestinian violence. Or if Washington withholds its veto without prior coordination with Israel, thereby deepening Jerusalem's isolation and international de-legitimization.

Thus far, the only sign that administration negotiators are aware of the impending challenge of the Palestinian unilateral diplomatic endgame is their demand that bilateral negotiations, if they ever begin, concentrate first on border issues, thereby presumably facilitating the PA's state-building effort. Even when the Democrats controlled Congress, not a single congressional committee dealing with the Middle East even bothered to put this critical dynamic on its agenda. And the only sign of Israeli awareness is its ongoing readiness to accommodate, however gradually, Palestinian achievements in the realm of West Bank security.