The biggest obstacle to peace between Israelis and Palestinians is the emergence of Hamas as the de facto government of the Gaza Strip, where 1.5 million Palestinians reside. Peace talks can begin with Hamas on the sidelines, but they cannot finish if Hamas refuses to play ball.

Hamas has proved that it has the means to disrupt peace talks with rocket and mortar strikes, shootings of Israeli soldiers and agricultural workers near the Gaza border, and the kidnapping of personnel from the Israel Defense Forces. But it can also undermine peace talks without using violence. Hamas can allow other terrorist groups to operate from Gaza and claim impotence or ignorance. It can also stymie negotiations politically. Hamas regularly argues that Palestinian Authority leader Mahmoud Abbas, whose power base is in the West Bank, is selling out the Palestinian cause. This makes it harder for Abbas to entertain concessions to Israel, particularly if they involve no immediate quid pro quo from Israel.

In the meantime, Israel, Egypt, and the international community have put Gaza under siege to isolate and weaken Hamas, ideally leading to its overthrow or collapse. Israel, however, has tried to coerce Hamas without causing mass starvation -- a difficult balance. Although Israeli policies keep Gaza near the brink, Hamas knows Israel will not let the Strip go over the cliff.

This is small comfort to Gazans. Aid agencies now put Gaza's poverty rate at 80 percent, and the world lays the blame for this suffering at Israel's feet. Hamas, despite its aggressive and repressive agenda, is successfully portraying itself as a victim of Israeli cruelty and violence.

The siege of Gaza has failed on another level: it has not crippled Hamas. Today, Hamas has an unquestioned monopoly on the use of force in the Gaza Strip, and its political clout among Palestinians has grown at the expense of moderates such as Abbas. The siege has increased the importance of the social services that it provides and it also taxes the goods smuggled through tunnels between Gaza and Egypt. Hamas has found it easier to raise money from Iran, which is eager to attach its name to such a high-profile and popular anti-Israel group.

Some Israelis believe that the alternative to the siege is to confront Hamas head-on, removing it from power by reoccupying Gaza and forcing it underground. But that strategy would lead Israel into a quagmire. And occupying Gaza again would hurt Israel's relations with the United States, the international community, and the moderate Palestinian leadership of the West Bank.

If Hamas cannot be uprooted, it might be convinced to not disrupt peace talks with violence and tone down its rhetoric. In order for Hamas to want a lasting cease-fire, Israel and its allies must change the organization's decision-making calculus -- a process that will require both incentives and threats. One way to go about this would be for Israel to allow the regular flow of goods into Gaza with international, rather than Israeli, monitors manning the crossing points. Israeli intelligence would still watch what goes in and out to ensure that the monitors did their job, but symbolically the switch would be important. In exchange, Hamas would commit to a lasting cease-fire and agree to stop all attacks from the territory under its control. Hamas would also close the tunnels and end its smuggling.

Such a deal would allow Hamas to claim credit for improving the lives of Gazans, and it could use the resulting increase in the flow of goods to reward its supporters. For Israel, the regular rocket attacks would come to a complete halt and the threat of renewed attacks would diminish. A cease-fire would also free up Israel diplomatically. If the problem of Hamas receded, Israel could take more risks at the negotiating table with Abbas.

Palestinian moderates would rightly complain that Israel was rewarding violence. And if Gaza's economy improved, the contrast between living conditions there and living conditions in the West Bank would become less stark, which would hurt Abbas politically. In order to offset any political gains Hamas might make, the international community should encourage efforts to provide law and order, reduce corruption, and otherwise build a state in the West Bank. This would help make Abbas' government a true rival to Hamas when it came to governance.

Formalizing the cease-fire with Hamas would raise the question of whether Israel and moderate Palestinians were simply postponing an inevitable fight and allowing the enemy to get stronger in the meantime. However, if the rocket attacks from Gaza resumed or if credible evidence emerged that Hamas was dramatically increasing its military capabilities, Israel would have a strong case for resuming the siege in a more comprehensive way or using force. The international community, therefore, must support not only the idea of formalizing the cease-fire but also Israel's right to retaliate militarily in Gaza if, despite Israel's concessions, Hamas returned to violence.

Daniel Byman is a Professor in the Security Studies Program at Georgetown University and a Senior Fellow at the Saban Center for Middle East Policy at the Brookings Institution.

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(C) 2010 Foreign Affairs, September/October 2010