This time last year Palestinian Authority President Mahmoud Abbas was a hero to his people as he waved an application for statehood recognition from the podium of the United Nations General Assembly.

The gambit was met with a standing ovation and cheers by an audience of ambassadors and world leaders, as Israeli Prime Minister Benjamin Netanyahu remained seated and stone-faced.

Abbas will deliver a different kind of speech tomorrow when he returns to the UN dais.

“Last year cost them a lot,” said Hussein Ibish of the American Task Force on Palestine, a nonpartisan group based in Washington that advocates a peaceful two-state solution with Israel. In hindsight, he said, it was “not the wisest course of action.”

“Presumably, after having endured a very predictable failure, they will have learned the diplomatic lesson,” he said in a telephone interview.

While the 77-year-old Abbas had succeeded in grabbing attention for his cause, a year later that victory rings hollow. The Palestinians are no closer to achieving statehood -- either in terms of territory or UN recognition -- and the Israeli- Palestinian peace process is moribund, with any diplomatic urgency superseded by war in Syria and the possibility Israel may preemptively strike Iran’s nuclear facilities.

‘The End’

“The Palestinian people thought that the Abbas speech last year was the beginning, but I am afraid a year later it seems that it’s the end,” said Hani Al Masri, a Ramallah-based political analyst.

This time, rather than pursuing a doomed path to recognition as a full “member state” that the U.S. would veto in the Security Council, Abbas has lowered expectations. He is seeking a limited upgrade from observer “entity” to “non- member state” in the 193-member General Assembly, where no nation holds veto power. That, too, is opposed by U.S. and Israel, which say any issue of statehood can be resolved only through negotiations.

“A year later, Abbas is going to the GA with something he he could have done last year, ” Masri said in an interview. “He is applying for non-member state, but with no vote due to the pressures made by the U.S.”

While becoming a non-member state may open the door for the Palestinian Authority to sign treaties such as the Rome Statute that set up the International Criminal Court, it would alienate the U.S., the UN’s biggest financial contributor and a key aid donor to the Palestinians.

Aid Needs

When the Palestinian Authority was accepted last year into the UN cultural agency Unesco, best known for its designation of “world heritage” sites, the U.S. response was to cut off funding that provides almost a quarter of the agency’s budget. The U.S. has said that American law would require similar cutoffs for any UN agency that grants the Palestinians the same status as member states.

Irritating the U.S. may be risky given the need for U.S. aid, according to two Palestinian officials speaking on condition of anonymity to discuss the sensitive matter. The Palestinians receive about $550 million a year in aid from Washington, according to the Congressional Research Service.

Any new Palestinian Authority initiative at the UN will probably wait until after the U.S. elections in November, the diplomats said.

“The PA cannot afford another fight with their donor,” Ibish said.

After last year’s historic UN speech, throngs of Palestinians welcomed Abbas home to the West Bank city of Ramallah with waving flags, holding up posters of him. Riding the wave of popular enthusiasm at the time for the Arab uprisings, the Palestinian leader had promised something similar.

‘Palestinian Spring’

“We have told the world that there is the Arab Spring, but the Palestinian Spring is here,” he told a chanting crowd of supporters on Sept. 25, 2011. “A popular spring, a populist spring, a spring of peaceful struggle that will reach its goal.”

That promise didn’t come to pass, and today the streets in West Bank cities are often crowded with protesters amid worsening economic conditions, including higher fuel prices and delayed payments for public employees.

After average economic growth of 9 percent from 2008 to 2010, real growth in the West Bank declined to 5 percent in 2011 and the first quarter of 2012, as unemployment rose to 19 percent in the first half of this year from 16 percent a year earlier, according to the International Monetary Fund.

The economic slowdown in the West Bank “poses a major challenge” to continued Palestinian Authority financial and institutional stability, according to an Israeli government report this month.

Cash Crisis

The global economic slump has aggravated a cash crisis as donors, including the U.S. and Arab nations, haven’t followed through on funding pledges. Outside aid finances the bulk of the Palestinian Authority’s $4 billion budget, half of which goes toward paying the salaries of about 150,000 workers.

The total budget deficit is $1.5 billion. Even with $1.1 billion in donor support promised, that leaves a hole of almost $400 million, Palestinian finance minister Nabeel Kassis told donors at a Sept. 23 meeting in New York.

The International Monetary Fund warned in a Sept. 23 report that the Palestinian economy is facing “serious risks” and urged the government to pursue a contingency plan to cover its “financing gap.”

Reviving Diplomacy

Though the campaign to become the 194th member of the world body was always a long shot, Abbas gambled it would at least revive diplomacy and perhaps even force Israeli concessions, such as reviving a freeze on construction in Jewish settlements in the West Bank.

Instead, the likelihood of a two-state solution with Israel has further dimmed, and a win by Republican presidential candidate Mitt Romney would make the prospect still more remote.

The former Massachusetts governor told campaign donors that the Israeli-Palestinian conflict is going to “remain an unsolved problem” and that the Palestinians are uninterested in peace. Romney made the comments at a closed fundraiser in May, and they became public when a video of the event was posted Sept 18 by Mother Jones magazine.

Even so, it would be a mistake to write off Abbas, said Robert Danin, a senior fellow at the Council on Foreign Relations in Washington. The Palestinian leader has raised the stakes, and the option of taking the issue to the General Assembly can be a potent tool, he said in an interview.

“The threat may be more powerful than the act,” he said. “But it does give Abbas enhanced leverage to push for active American engagement on the Palestinian front after the November elections.”

-- With assistance from Fadwa Hodali in Ramallah and Alisa Odenheimer in Jerusalem. Editors: Terry Atlas, Larry Liebert