The agreement appears to have been personally directed by the new Prime Minister, Yitzhak Rabin, who has always been known to Palestinians in the West Bank as the defence minister who, in 1988, set out to 'break their bones'.
The end of the stand-off at al-Najah University in Nablus - which began when soldiers claimed that armed suspects were on the campus - came just two days ahead of the arrival in Israel of the US Secretary of State, James Baker, who will meet Mr Rabin to discuss the next moves in the peace talks.
The US-Israeli meeting would have been ominously overshadowed had the siege at the university not been resolved in time. Mr Rabin, who is committed to achieving Palestinian autonomy within nine months and has told the Palestinians he is offering them the best deal they will ever get, had a great interest in finding a peaceful way out of the crisis.
Similarly, it seems, the Palestinian leaders - who will also be meeting Mr Baker - were keen to end the siege peacefully, and display their own capacity for leadership and calm. Faisal al-Husseini, the Palestinian leader directly involved in the negotiations, said: 'Wisdom and patience allowed us to reach this agreement. Neither side wanted this confrontation before we resumed the peace process.'
The formula for resolving the conflict allowed six suspects, wanted by the Israeli army, to leave the campus in safety and to be handed over to the International Committee of the Red Cross. They are to be expelled to Jordan. It was agreed that the suspects would not be allowed to return to the West Bank for three years.
The agreement was clearly a climb-down for the Israeli army. The order to accept the formula appears to have come directly from Mr Rabin.
Relief was evident on all sides after the agreement. A bloody and divisive clash at Nablus could have destroyed the delicate process of Arab-Israeli confidence-building that is now under way.
Although the Nablus episode appears to be over, it is certain to impinge on the talks between Mr Rabin and Mr Baker. Palestinian leaders are calling for conciliatory measures from Mr Rabin to reassure their people that peace will bring them benefits, and to give the leaders themselves credibility in the streets.
Among other things, the Palestinian leaders want an early withdrawal of Israeli armed forces from the West Bank and the Gaza Strip, the release of political prisoners and the easing of military directives which drastically curtail human rights. If confidence has indeed been built up through resolution of the Najah crisis, perhaps there will be greater will to make such concessions.