The street demonstrations roiling the Arab world have riveted and moved many Americans, who have visions of democracy sweeping through northern Africa and the Middle East. As I write this, Hosni Mubarak, Egypt’s president, has announced he will not stand for re-election, as has Yemen’s longtime ruler, Ali Abdullah Saleh. Tunisia’s ruler fled, and the nation has a new government; King Abdullah of Jordan replaced his own cabinet and now has a prime minister who promises reform. There are even stirrings in Syria. President Obama has signaled his determination to support democratization in the region, as promised in his 2009 Cairo speech, and not to remain tied to authoritarian regimes.

IN PRINCIPLE Abbas and Olmert at talks in Annapolis, Md., in 2007, intended to revivify the peace process.

In Israel, by contrast, there is fear. Whatever their doubts about how Egypt and Jordan were ruled, most Israelis counted on the Mubarak and Hashemite regimes, if not as true allies then at least as stable neighbors committed to the peace treaties they signed. Israelis understand that their occupation of the West Bank and siege of Gaza are sources of rage in the Arab street, but many have come to believe that the peace process is futile — especially since President Obama seems to have despaired of achieving meaningful negotiations — and they fear democracy will bring Islamists to power, or at least encourage anti-Israeli politicians. They feel a strategic pillar has been kicked from under them, and the regional unrest only strengthens their sense that they must defend themselves against, rather than make peace with, the Palestinians.

Yet amid this turmoil are opportunities, not the least of which is precisely the chance to end the Israeli occupation and found a Palestinian state. A viable plan exists: it is waiting to be forged from the far-reaching proposals that Prime Minister Ehud Olmert and President Mahmoud Abbas of the Palestinian Authority made to each other in 2008. We had a glimpse in mid-January of these negotiations — the “Palestine Papers,” leaked by Al Jazeera; and then excerpts from Ehud Olmert’s memoir, published in Israel. But the picture emerging from these accounts was unfocused and confusing, and the achievements of the negotiators were lost in the excitement generated in the streets of Tunis and Cairo. Yet the Israeli-Palestinian talks in 2007 and 2008 provide an invaluable template for a new, Obama-led push for peace. As unlikely as it might sound, now is the time. Obama’s hand in Israel has been strengthened by events in Tunisia, Egypt and Jordan. At the same time, the U.S. is paying a growing price for the current impasse between Israel and Palestine and the continuing occupation of Palestinian lands, for which Americans receive much of the blame. A settlement in Palestine will not put bread on Egyptian tables, but it will transform American status in the region. And it might rescue the fortunes of Israel.

OVER THE COURSE of almost two years, from December 2006 to mid-September 2008, Olmert and Abbas met 36 times. Lower-level talks were also going on, led by Israel’s foreign minister at the time, Tzipi Livni, and one of the Palestinian Authority’s longtime negotiators, Ahmed Qurei. These talks were the source for the “Palestine Papers” published by Al Jazeera just last month: notes from the Palestinian side on how negotiations were going. The top-level talks were considerably more important. The leaders never consummated a deal. But both had gone far enough to tee up new American “bridging proposals” that Abbas, in particular, was counting on. I spoke with Olmert this year in Jerusalem on the morning of Jan. 21, and that same evening with Abbas in Amman, Jordan. The leaders revealed in detail what was proposed, what was implicitly agreed, what the gaps were and what they suggested was susceptible to compromise.

Each told me that if new violence breaks out in Palestine, as seems quite likely, historians will look back with a sense of pathos on how narrow and, in some key areas, trivial the gaps were. “We were very close,” Olmert told me, “more than ever in the past, to complete an agreement on principles that would have led to the end of the conflict between us and the Palestinians.” Abbas said the talks produced more “creative ideas” than any in the past. He took pains to assure me that he had been most flexible on Israel’s security demands. Olmert, in retrospect, agrees, saying that Abbas “had never said no.” Olmert insisted that he had conceded to Abbas every major demand Palestinians had made for decades: a border based scrupulously on the 1967 lines, a Palestinian capital in Jerusalem and “recognition of the problem” of refugees. “I was ready to take complete responsibility and move forward forcefully,” Olmert told me. “I believed, I still believe, that I would have broken through all the barriers and won over public opinion in this country and the world.”

THE ISSUES THAT were supposed to be intractable — demilitarization of the Palestinian state, the status of Jerusalem and the right of return of Palestinian refugees — proved susceptible to creative thinking. Even on borders, Olmert and Abbas were able to agree on fundamentals: a desire to disrupt as few lives as possible and to maximize the contiguity (and therefore the economic possibility) of Palestinian cities. “We didn’t waste a minute during our months of negotiation,” Abbas said.

Where bridging proposals seemed most called for was over the extent and nature of land to be swapped — in effect, the fate of specific large Israeli settlements. The Israeli position, where it diverged from the Palestinian, was not about principle but focused primarily on the practical matter of how many (often violent) settlers the Israeli government would have to force back behind the Green Line. The most important discussions were on security, borders, Jerusalem and the Palestinian “right of return.”

The Question of Security
In his pivotal Bar Ilan University speech of June 14, 2009, Olmert’s successor, Benjamin Netanyahu, finally promised to work toward a Palestinian state and made much of his demand that Palestine be demilitarized. But he must have known he was pushing on an open door: Olmert and Abbas had already come up with a series of principles that would leave Palestine demilitarized (“I agreed to the term ‘nonmilitarized,’ ” Olmert told me) while preserving its sovereignty.

Olmert’s security principles were the following: Palestine would have a strong police force, “everything needed for law enforcement.” It would have no army or air force. The Palestinian border with Jordan, through which missiles and heavy armaments might be smuggled, would be patrolled by international forces, probably from NATO. There would be a procedural guarantee that no foreign army would be able to enter Palestine, and its government would not be permitted to enter into any military agreement with a country that does not recognize Israel. Israel, for its part, would have the right to defend itself beyond the borders of a Palestinian state — say, against land forces massing on the eastern side of the Jordan River. Israel expected to reserve the right to pursue terrorists across the new borders. Israel would be allowed access to airspace over Palestine, and the Israel Defense Forces would have rights to disproportionate use of telecommunications spectrum (though commercial rights would be equalized under international law). When I spoke with Abbas in Amman, I did not have to refresh his memory about these overarching principles. “We don’t need a Palestinian army,” he said emphatically. “We don’t want an air force or tanks or rockets.” He insisted that the whole matter had been worked out with Gen. James Jones, who eventually became Obama’s national security adviser. Abbas confirmed that Israel could indeed negotiate special permits regarding Palestinian airspace.

Abbas further offered Olmert his choice of international forces to patrol the border with Jordan, and he even said that he had consulted the Americans, who agreed to participating in a NATO force as long as it was under American command. Jordan and Egypt, whose borders were implicated, made some conditions of their own: no Jordanian or Egyptian would participate in the force, and it would be based only on Palestine’s side. “The file on security was closed,” Abbas told me. “We do not claim it was an agreement, but the file was finalized.”

REWRITING THE BORDERS
Abbas opened the negotiations over land with a map showing how Israel could annex 1.9 percent of Palestine in return for tracts of land equal in size and quality; Olmert produced a map of 6.3 percent, suggesting that for the percentage of Palestine Israel would annex, it would compensate Palestine with 5.8 percent, plus a 25-mile tunnel that would run under Israel from the South Hebron Hills to Gaza. “The built-up area of all the settlements was 1.1 percent,” Abbas said, “so when I offered them 1.9, it was more than enough.” Olmert’s bid was somewhat less firm from the start: “I gave him reason to believe that I would go down to 5.9, but that would be final.” Notionally, the leaders would then be looking to the United States to help them split the difference; this was what Abbas, at least, expected. (Since the talks ended, various compromises in the 4 percent range have been floated by teams working at the James Baker institute at Rice University.)

But so much talk of percentages can be misleadingly abstract. There could never have been an exchange of maps had there not been a mutual agreement on the definition of the “occupied territory.” And here American diplomacy proved decisive in advance of any possible compromise.

Historically, Israel has tried to exclude the territories of expanded Jerusalem, about 25 square miles, from the territory to be divided. Israel passed a law in 1967, shortly after the Six-Day War, claiming this entire territory as its own. Secretary of State Condoleezza Rice made it clear, however, even as Olmert and Abbas were negotiating, that this Israeli claim was counter to U.S. policy. Occupied territory, she said, would be defined as the Gaza Strip, the West Bank (including East Jerusalem), the Dead Sea, Jordan Valley and “no man’s land” — the last being small areas neither Israel nor Jordanian forces patrolled before 1967. (These areas are still crucial, since the no man’s land around the monastery in Latrun is now paved over by the major highway connecting Jerusalem to Tel Aviv.)

So when Olmert finally showed Abbas his map on Sept. 16, it was an established principle of these negotiations that any territory Israel sought to annex in Greater Jerusalem would have to be compensated like any other occupied territory. This was unprecedented. Olmert held that the no man’s land also be divided 50-50, with Israel understandably taking more around its highway and ceding more in other areas, but this slight divergence from Rice’s definition was of no great consequence. “I told Abbas this land had never been used, so the only reasonable thing was to divide it,” Olmert said. “He seemed quite happy with it.”

The real issue in contention, however, was which Israeli settlements would be permitted to stay, and which would have to be removed. When Abbas alluded to “built-up settlements,” he was conceding that, yes, it would make no sense to move the Jewish suburbs of Jerusalem — except Har Homa, begun by the first Netanyahu government after the Oslo process had started — or the settlements of Gush Etzion and Alfei Menahse, towns by now adjacent to the Israeli border. Under Abbas’s offer, more than 60 percent of settlers would stay in place.

Olmert, for his part, was presenting a plan in which the most sparsely populated settlements would be evacuated, but Efrat (extending from Gush Etzion), Maale Adummim (a town just east of Jerusalem) and Ariel, a town of 18,000 between Ramallah and Nablus, should be permitted to stay. From Olmert’s point of view, the problem was not helping settlers fulfill their dream of redeeming promised land but helping the Israeli military avoid the pain of removing them. Many settlers are fanatical, armed and contemptuous of Israeli democracy; some even like to call themselves Judeans. Israelis, Olmert implied, are loath to fight Judeans for the sake of Palestinians; and his map already called for removing the ultrafanatical town of Kiryat Arba, abutting the Tomb of the Patriarchs in Hebron.

Not that Abbas was willing to make Olmert’s problem his own. “We have criteria for which settlements must be removed,” Samih Al-Abid, a former minister in the Palestinian Authority and a negotiator, reasoned. “We cannot tolerate settlements that disrupt our territorial contiguity, disrupt the economic development of Palestinian cities or leave people in place who are bound to become security threats” — either because they are fanatics or because their very presence will be provocative to the towns around them. By these criteria, Ariel is the most blatant problem. Olmert told me that Abbas “kept coming back to it.”

Ariel, after all, was plunked down in the hills between Nablus and Ramallah precisely to make a statement that the historic Land of Israel was being claimed as indivisibly Jewish. Its residents, many of whom were Russian immigrants taken directly from the airport to Ariel and given cheap apartments by Ariel Sharon, have no local industry to speak of. When the Baker Institute teams suggest compromises of between 3 and 4 percent, Ariel is almost always removed. One possibility raised by Al-Abid was “space for time.” If Israel agreed to vacate a large settlement like Ariel, a complex task, Palestine would agree to give it considerable time to do so.

Olmert and Abbas both acknowledged that reciprocal relations would be necessary, not some hermetic separation. They also acknowledged the need to share a single business ecosystem, while cooperating intensively on water, security, bandwidth, banking, tourism and much more.

The negotiations on borders ended here, with Olmert telling Abbas among other things that no Israeli prime minister could ever remove Ariel, and Abbas telling Olmert that no Palestinian president could ever accept it. “I told him, ‘Sign,’ ” Olmert said. “ ‘You will never get a better proposal from any Israeli government for the next 50 years.’ ” Abbas would not sign. He asked for Olmert’s map, which Olmert refused to give him unless he signed off on it. Olmert told me he thought Abbas delayed partly because he hoped to get a better deal on the map from an Obama administration. Removing Ariel, in any case, remained perhaps the most freighted border dispute, since this settlement would be the most disruptive to Palestinian development.

WHO GETS JERUSALEM?
Olmert and Abbas departed from transcendental claims to holy space and decided to base a solution on the practical challenge of governing the holy sites — so as to maximize access for all pilgrims from the three Abrahamic religions — and adherence to the principle that sovereignty derives from the consent of the governed.

The leaders agreed that Jewish neighborhoods should remain under Israeli sovereignty, while Arab neighborhoods would revert to Palestinian sovereignty. (Olmert even showed me an architectural sketch for a symbolic Palestinian checkpoint leading to the American Colony Hotel in Sheik Jarrah.) At the same time, Abbas suggested that East Jerusalem and West Jerusalem would be municipalities, but the city as a whole would not be divided. “There would be an overall body to coordinate between them,” he said.

The really creative ideas were about the disposition of the Old City and holy places — the Islamic sites of the Haram Al-Sharif (or Temple Mount), the Western Wall, the Church of the Holy Sepulcher and so forth, which both sides agreed were indeed part of the “holy basin.” Olmert suggested that it be governed by a kind of custodial committee, made up of five countries: Palestine, Jordan, Saudi Arabia, the U.S. and Israel. (Abbas was under the impression that as many as seven trustees might be involved, including Egypt and the Vatican.)

The trusteeship would maintain the holy sites and guarantee access for all religions; some kind of international force would administer it. Abbas accepted Olmert’s proposal in principle, as long as the two could agree on precisely what the holy basin was. And there was the rub.

Olmert wanted the holy basin to include not only the Old City but also the Mount of Olives, the so-called City of David (an archaeological site) and a considerable part of the Arab neighborhood of Silwan. Abbas was willing to define the holy basin as the Old City only, since the Mount of Olives includes the Palestinian neighborhood of A-Tur, and he was unwilling to exclude residents of A-Tur and Silwan from a future Palestinian state. He implied, but did not say, that these neighborhoods had been inflamed by Jewish settlers. The extremist Ateret Cohanim, a settlement organization, has moved into expropriated apartment blocks there.

Olmert knew his offer was an important concession, one that redeemed in its way the U.N. partition plan of 1947, which envisioned ancient Jerusalem as an international city. “You cannot come away from negotiations without a scar that will bleed for a long time,” Olmert reflected. “I, the mayor of Jerusalem, the man who stood in the front line advocating how the city was the one, undivided, eternal capital of the Jewish people, was the first to propose unambiguously not only the division of the city, which [Prime Minister Ehud] Barak did in a way, but to give up sovereignty over the entire holy basin. This is not something I did with joy; this is something I did with a broken heart.”

Abbas told me (as Olmert had) that he assumed the status quo regarding the governance of Islamic sites by a Palestinian religious authority would be preserved, and that he would try to get an endorsement for this plan from the Arab League.

And so the putatively impossible problem of Jerusalem now boiled down to the question of whether A-Tur and parts of Silwan would be excluded from Palestine and whether the Har Homa suburb would be excluded from Israel. I checked back with Olmert about the question of the holy basin, and he replied, “The exact lines were not drawn, but I believe it could easily be agreed.”

THE RIGHT OF RETURN
Olmert is a lawyer and appreciates, he told me, the usefulness of “constructive ambiguity.” With regard to Palestinian refugees — as many as five million people descended mainly from those 750,000 who lost their homes in the 1948-49 war — it was crucial, he said, “to come up with a formula that allowed each side its own interpretation.” Olmert agreed to allow 5,000 Palestinians to return to Israel proper, 1,000 a year for five years — each applicant to be reviewed by Israel, and each accepted “for humanitarian reasons.” As “an integral part” of this offer, Olmert said, there would be a signing statement that strongly emphasized how repatriation of any refugees would be carried out “in the spirit of the Arab League peace initiative of 2002.” That initiative stipulates “a just solution to the Palestinian refugee problem to be agreed upon in accordance with the U.N. General Assembly Resolution 194.” And U.N. 194 resolves that “the refugees wishing to return to their homes and live at peace with their neighbors should be permitted to do so at the earliest practicable date, and that compensation should be paid for the property of those choosing not to return and for loss of or damage to property.”

Olmert suggested in addition that the peace plan include strong wording to the effect that “Israel is sensitive and is not indifferent to the suffering of Palestinians who lived in what became Israel and were forced out of their homes as a result of the conflict and then lived in misery for years.” He added that there should be some wording recognizing also the suffering of Jews from Arab countries who were forced out of their homes after 1948. Equally important, Olmert proposed that all sides work with international bodies and financial institutions to establish an international fund to “generously compensate” refugees for their loss of property. He made it clear that Israel would help organize this fund. “In return for this,” Olmert said, “I expected a written commitment that this was the end of all claims and the end of the conflict.”

So Olmert did not specifically recognize the Palestinian right of return but agreed to do everything that someone who did recognize it would do, suggesting 5,000 returnees but leaving the exact number subject to further negotiation. (Olmert said the final number would be only “symbolic” and not more than 15,000.) Abbas, in this context, welcomed the principles but not the number: “I told Olmert that I have five million refugees, all of them expelled from Israeli territories — all of them. If I ask you to accept that all five million should return to Israel, you will tell me, and you are right, that I would destroy Israel. I said, O.K., let us talk about how to find a solution. But don’t tell me that no single Palestinian can return to Israel” — by which he implied that 5,000 was a negligible number.

Palestinian negotiators have mostly accepted “the modalities for compensation” that were negotiated during the round of talks held in Taba, Egypt, and later made public: refugees could immigrate to Palestine or stay in the states in which they now lived (especially Jordan), or go to a third country. In exceptional cases, refugees could go to Israel. In all events, they would be compensated and their relocation paid for.

In other words, both leaders agreed on the principle that a certain number of Palestinians should return, but that the governing question should be how to limit that number in a way that preserves Israel’s distinction as a state with a Jewish majority but that does not prejudice the rights of the Arab minority. As with the land question, the leaders agreed on the principle but disagreed about a number.

Abbas did not tell me what number of returnees he had in mind. The Geneva Initiative, in which people close to him participated, stipulated in 2009 that Israel should “consider the average of the total numbers submitted” by other nations that would accept Palestinian refugees. But this gave only vague guidance.

OLMERT KNEW THAT if he and Abbas — with an American thumb on the scale — produced a deal, he would then be facing something of a hard sell. That is why, he said, he made his comprehensive offer in September. He knew that the annual General Assembly of the United Nations was coming up. He wanted to prepare a world-historical diplomatic drama.

“My idea was that, before presenting it to our own peoples, we first would go to the U.N. Security Council and get a unanimous vote for support,” Olmert told me. “Then we would ask the General Assembly to support us, and you can imagine that if we both would ask, only Iran or Syria might say no. Then we would go to a joint session of Congress, then to the European Parliament, then a big ceremony on the White House lawn with 25,000 people, with all the leaders of the region where we would initial it.”

Olmert and Abbas would then return to the region, he said, and invite all the leaders of the world: “No one would be missing, I suppose. The Chinese, the Russians, the Japanese, the Europeans, all the Americans, Canada, Australia — you name it. And they would stand at that point connecting the west side of Jerusalem to the east side and declare their commitment to support the agreement in all its aspects. And then we would go to elections, with the accumulated impact of this process at our backs.”

Olmert made his most comprehensive offer to Abbas on Sept. 16, 2008, the opening day of the General Assembly in New York. Abbas then “went silent” (as Olmert puts it), weighing a response as the Gaza border was heating up, not sure which American presidency the Palestinian leadership would confront — and also questioning the point of continuing negotiations with a lame-duck prime minister. (Olmert was under investigation for corruption and announced in late July that he would be stepping aside once his Kadima Party chose a new leader.) Yet negotiations were not formally suspended until January, after Israel attacked in Gaza. Rice had invited the sides to meet in Washington. Olmert, facing political exile and preoccupied with the war, failed to send his chief diplomatic aide, Shalom Turgeman, to the meeting. But Abbas was still determined that American diplomacy could bridge the gaps and was ready to risk the embarrassment of sending Saeb Erakat, the Palestinians’ longtime chief negotiator, to meet Israeli representatives while Gazans were under Israeli fire. “I had promised Bush,” Abbas explained. “I thought: There would be fruit from this meeting. Let us seize this opportunity.”

To this day, Abbas still expects America to put the deal over. The gaps appear so pitifully small: Ariel and a couple of other settlements, the question of whether parts of Silwan would be a part of the holy basin, a compromise number on refugees? “We still want bridging proposals,” Abbas told me, adding, “we want America to be a strong broker.”

Without a deal, Jerusalem and the West Bank will almost certainly explode again, this time perhaps igniting the kind of local war we saw in Bosnia: violence spreading to Israeli Arab towns and drawing in both Syrian-backed Hezbollah from Lebanon and Hamas from Gaza, each armed with thousands of missiles. “Jerusalem is becoming a tinderbox; it could explode any minute,” the Palestinian pollster Khalil Shikaki told me recently. “We now see the collapse of the nonviolent vision but not the replacement. . . . Any unilateral Palestinian step [to statehood] will be meaningless — no one is fooled by this. There is fatigue. They don’t want to go back to the days of bloodshed. I think when they reach the conclusion, ‘The hell with it,’ we’ll go back to that dark period, then all hell will break loose.”

But Abbas could anyway soon be gone. He told me he expects America to act to bring about a plan by this fall. That is what the Obama administration once promised, that it would work to secure a deal on a Palestinian state by September 2011. “If nothing happens, I will take a very, very painful decision,” Abbas said. “Don’t ask me about it.” He grew wistful. “We have to live with each other. We have to talk with each other. We have to know each other. Many have criticized me since the 1970s, but until now I am committed to peace. But not forever. I don’t mean I will return back to violence — never! In my life, I will never do it. But I cannot stay in my office forever doing nothing.”

OLMERT AND ABBAS conveyed the details of what they had achieved to both Secretary of State Hillary Clinton and George Mitchell, the Middle East envoy. Condoleezza Rice, Olmert said, prepared a confidential memo for the incoming administration. He could not understand why Obama “did not adopt these achievements as policy.” Abbas told me he is still waiting for an American initiative: “America is the broker; we cannot replace it.” Did he want the understandings he reached with Olmert to become the basis of new American-sponsored talks with Netanyahu? “I demanded this,” he said.

Olmert made his offer as a sitting prime minister familiar with the views of the Israeli general staff and military intelligence. Now, with a new regime taking shape in Egypt and serious changes under way in Jordan, Israel will be more dependent on American diplomacy and military support than ever. It is hard to imagine Netanyahu resisting an Obama initiative should the president fully commit to an American package based on these talks and rally the E.U., Russia and the United Nations.

Abbas, for his part, still leads the P.L.O. and governs the West Bank. Hamas controls Gaza but has committed to honoring any deal Abbas negotiated for the 1967 borders as long as its terms would be submitted to a referendum, which Abbas has solemnly promised to call.

“There is a danger that the events in Egypt will mislead some to lose hope in peace,” Olmert told me pointedly in an e-mail. “I think the opposite, that there can be another way to challenge the events near us. This is the time to move forward, fast, take my peace initiative with the Palestinians and make a deal. This will be my advice to Prime Minister Netanyahu. Don’t wait. Move, lead and make history. This is the time. There will not be a better one.”