Mary Dejevsky: The 'two-state solution' has just imploded

When I revisited Russia in 2001 after a gap of almost eight years, I asked everyone the same question. What was the worst thing that had happened over that tumultuous period, and what had been the best? The answers, from friends, acquaintances and officials, showed surprising unanimity.

The worst thing was the rouble crash of August 1998, either because they had personally lost money or because they felt Russia had been humiliated. And the best? Well, they grudgingly conceded: the rouble crash. That was when things started to get better. The market started to work properly; Russians stopped taking ill-informed advice from foreigners.

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I recall these comments now because of the sense of utter hopelessness that washed over the Middle East after the gunmen of Hamas wrested control of Gaza. With the division of the embryonic Palestinian state, politically as well as geographically, all the assumptions that underlay the so-called peace process turned to dust.

Israel was persuaded to cede land for peace. That worked with Egypt and Sinai. Yet Israel's withdrawal from Gaza precipitated the contest for power that has just resolved itself so bloodily.

The Palestinians were persuaded to hold elections as a necessary preliminary to statehood. Yet when the voters produced the "wrong" result, the Palestinian Authority was denied the international support that was supposed to have been the reward for democratic behaviour. Now the "two-state solution", according to which Israel and a Palestinian state would exist "side by side in peace", has imploded. What had been accepted for years as the centrepiece of any long-term settlement - and was endorsed as such by President Bush - looks completely unrealistic.

Survey the region as a whole, and losers litter the landscape. Israel now has what some are calling an "Islamic mini-state" on its border, with the heightened threat to its security that implies. For the Palestinians, the rivalry between Fatah and Hamas has shattered the dream of statehood. Add the simmering conflicts in Lebanon, the questions that hover over the stability of Syria, and the carnage in Iraq - where the US admits its "surge" policy is failing - and it is hard to see how anything could deteriorate further.

Which may be why at least some of the talk in recent days has been not of despair, but of opportunity. Could it be that the abandonment of old ideas is the best thing that could happen to the peace process? And what if, among the first assumptions to be ditched, were that holy of holies - the "two-state solution"?

Ideas previously dismissed as peripheral or unrealistic are being given an airing. One of these is the "one-state solution", according to which the Palestinian territories would be incorporated into a federal state of Israel. The advantage may not be obvious, least of all to Palestinians still intent on full statehood, but it would require Israel to conduct itself as a normal democratic state, rather than a Jewish state in which national security is used to justify institutional discrimination against Arabs.

The de facto division of Palestine might suggest a "three-state solution". It is not impossible that Hamas and Fatah could run ordered administrations, once relieved of the distraction of each other's militias. There are viable states less populous than either.

Another possibility, revived by a US academic, is the incorporation of the West Bank into a federation with Jordan. That would require large sums in Western and Arab support and leave the problem of Gaza. But it need not spell the end of statehood hopes for Palestinians; it could be a transitional stage.

Syria, too, has contributed, suggesting that now might be the time for talks on the Golan Heights. Its opening position is the return of the Golan, in return for recognition of Israel, as a prelude to the full "integration" of Israel into the politics and economics of the region. Syria's view, as expressed by its ambassador in London this weekend, is that Israel's existence is now a fact of life. A new generation of Israelis knows no other homeland; they have a right to live in peace and security. "Seize the opportunity," he said several times.

"We are," he might have added, in that famous phrase, "where we are." And "where we are" is that almost every country in the region, with the exception of Iran, is weaker than a year ago, fearful of contamination from Iraq, and preoccupied with security. The US, for its part, has lost all credibility as a broker.

Yet any settlement always had to be acceptable first of all to Israel and its neighbours. Otherwise it would never have held, no matter how much money or how many US security guarantees underpinned it. The old peace process is dead. Let the real talking begin.

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