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This month, Palestinians and Israelis will mark one year since the renewal of peace negotiations at the Annapolis conference. It was there that we consummated the hope that we would reach a comprehensive peace agreement by the end of 2008, while improving the economic and security environments that underpin the political track. Yet, as we approach year's end, there seems to be no end to the bumpy road to peace that began in Madrid 17 years ago.

Regrettably, few expectations have been met. Settlements pepper the West Bank and continue to grow. Every indicator of settlement activity - from publicly and privately initiated construction to tenders and building permits - shows that, rather than stopping, settlement activity has in fact accelerated since Annapolis. Similarly, restrictions on access and movement are tighter than they were before Annapolis. Today, there are 630 checkpoints and roadblocks, as compared to 563 before Annapolis, not to mention the tightening of the siege on Gaza. And land confiscations, home demolitions, and military incursions and raids have all continued.

An Erosion of Self-Esteem

Needless to say, the quality of life for the average Palestinian has worsened. Yet, as devastating as these developments have been on Palestinian fabric of life, the combination of deteriorating ground conditions and the absence of a political horizon has had an even worse impact on the Palestinians' state of mind.

Decades of Israeli occupation and oppression have triggered and perpetuated an erosion in Palestinian self-esteem and self-assuredness. Palestinians old enough to remember the first intifada felt it during the second intifada. Palestinians also felt the shame of it in June of last year.

In turn, this erosion has tended to elicit one of two seemingly polar reactions among Palestinians, namely, defeatism and belligerence. Neither is constructive. You cannot end the occupation if your mindset is defeatist. Nor will belligerence get you there, with what may come with it by way of violence and isolation.

Today, the greatest obstacle preventing Palestinians from achieving their national goals is not occupation per se or factionalism, not poverty or separation, but a dangerous erosion of self-esteem and consequent loss of faith in their capacity to get things done.

Defeating Defeatism

To end the occupation, Palestinians must first rid themselves of what four decades of Israeli occupation have precipitated by way of fear, skepticism, cynicism, self-doubt - and loss of self-esteem. We can regain our sense of self-assuredness once we collectively and consciously embrace a paradigm that says that, on the way to freedom, defeatism must be defeated and belligerence must be set aside.

Acting on this conviction, from day one, this Palestinian Authority (PA) set out to create and set in motion mechanisms capable of getting us there - building towards statehood despite the occupation. This involved building strong, effective institutions capable of delivering services to the people in an expeditious and fair manner, all within the framework of good governance.

This effort has already started to bear fruit. In the area of financial management, for example, there is now a system that truly measures up to the highest international standards and practices. In addition to earning it trust at home, the government has won the international confidence necessary to secure much-needed aid, including from the United States and the European Union.

This is but one example of the progress we have been able to achieve over the past year in building towards statehood. There are other important examples, especially in the spheres of security and law and order. Together, these efforts prompted United Nations Secretary-General Ban Ki-moon to speak of "an emerging sense of self-empowerment" among Palestinians.

His is an accurate assessment. On visits to many districts in the West Bank - which will hopefully be replicated in Gaza - I was greeted with cautious, yet distinct glimmers of self-respect, pride and resilience. They were visible in the streets of Nablus and Jenin, where law and order and, thus, a modicum of normalcy have been restored. They were there in Manger Square in Bethlehem in May, when 1,000 businessmen and dignitaries from all over Palestine and abroad, including Israel, dined together in the open air. For the past few years, this feeling has existed in Bil'in, where villagers peacefully protest against the erection of a despicable wall that threatens their livelihoods and, sometimes, their lives. It was there one sad day when Palestinians walked up a Ramallah hill to bury Palestine's most highly revered literary icon, Mahmoud Darwish, conjuring up memories of the day the Palestinian nation mourned the loss of its late President Yasser Arafat. Pride and self-respect were certainly there the day a shipment of Palestinian pharmaceutical products, destined for the first time to Germany, made its way through the maze of economic restrictions in the West Bank, to meet the most exacting pharmaceutical standards in the world. And, indeed, they were there the day Palestinians welcomed a boat-load of visitors off the shore of Gaza. And they are there, every single day that a Palestinian child goes to school, that a Palestinian farmer manages to work his land, that a Palestinian mother remains hopeful that her son will be released from Israeli prison, that a Palestinian family chooses - finds a way - to remain on their land for another day.

A Sense of Dignity

Palestinians are approaching a critical mass of positive change, or "positive facts on the ground," that are indicative of a most encouraging shift in their mindset, away from doom and gloom towards a distinct sense of possibility and the promise of a better future.

When and where possible, this PA has tried to help create opportunities and conditions to make these things possible and, in so doing, to nurture the people's sense of dignity in themselves. And it remains unequivocally committed to doing just that.

Still, there is no dignity in what is happening to Palestinians now. And the same is true for Israelis. There is nothing dignified in Israeli parents having to be afraid while their children are away at school. There is no dignity for the mother of the Israeli soldier who delayed a Palestinian woman at a checkpoint near Nablus, causing her to lose her unborn child. There is also nothing dignified about the world's fifth-largest army subjugating a people with no country and no army, nor in a country that prides itself on being a democracy when it allows itself to be held hostage by a group of extremist settlers who forcibly put their own interests ahead of the will of the majority.

Despite this - indeed, because of this - Palestinians remain hopeful and resolute about reaching a peaceful resolution to the conflict with the Israelis based on a two-state model. Palestinians long to live in freedom like any other people. For, only with freedom can they achieve the heights of dignity that they strive for.

Not Just Any Peace

Palestinians don't just seek peace. They seek a meaningful and lasting peace with Israel. They seek strong economic ties between the independent states of Israel and Palestine. They do not want to simply get to a point where they just accept each other - they want to have warm relations where both sides recognize the mutual economic, intellectual, spiritual and, of course, security benefits of living and working together. They do not want to erect walls; they want to build bridges.

However, Palestinians are not interested in just any state and not at any cost. It is not just Israel who has a constituency it has to worry about and serve. It should not be forgotten why the results of Palestinian parliamentary elections were what they were in 2006. As one prominent Israeli advocate of peace put it, "There is no Palestinian partner for improving the quality of the occupation; there is only a Palestinian partner for ending the occupation." When all is said and done, the Palestinian leadership will have to take any agreement it negotiates with Israel to its people.

People have an inherent sense of fairness by which they judge any settlement, and that sense of fairness tells them that a peace agreement with Israel must yield a fully sovereign, viable, contiguous and potentially prosperous Palestinian state on 22% of their historic homeland, with East Jerusalem as its capital, and a solution to the refugee issue that honors the refugees and recognizes their rights and their suffering. That same inherent sense of fairness tells them that a rump state made up of disconnected Israeli throw-aways is not what they have waited for so long or sacrificed so much for. It tells them that the great compromise they made in 1988, when they relinquished their claim to 78% of their historic homeland, should be acknowledged and respected by the other party.

Regrettably, the two-state solution is teetering under the weight of 170 settlements and almost half a million settlers. Time is running out on the two-state solution. With every brick that is laid in a settler's house, with every road that is paved for settlers, with every concrete slab that is erected for the wall that snakes in and out of the West Bank, the bond that ties Israelis and Palestinians together, which originates in the fact that we must share the same piece of land, grows just a little bit tighter. That is the great irony of Israel's settlement enterprise. Prime Minister Ehud Olmert recognized this when he said, "The day will come when the two-state solution collapses, and we face a South African-style struggle for equal voting rights."

How to Achieve Peace

Nevertheless, hope remains that through negotiations a lasting peace between Palestinians and Israelis can be reached on the basis of a two-state solution. For this process to be successful, however, we must bring to it dignity and credibility. The Oslo process stalled because it quickly lost credibility - there was talk of peace while actions on the ground worked against peace. Annapolis risks being the same unless Israel reconciles its behavior on the ground with its stated intentions of peace and creating a viable and independent Palestinian state. And, if Palestinians and Israelis are to get to where they want to be, they have to treat each other with dignity and lead with dignity. This means behaving like statesmen instead of politicians - thinking of the next generation, not the next elections.

For Palestinians, this means remaining steadfast, not just to their principles for a solution, but to their commitment to non-violence and previous agreements. And Palestinians are resolute in this. This PA views its role as one of assisting the people to live better than the day before and to persevere on their land. And it is committed to doing so through constructive, non-violent means that honor, rather than shame, the Palestinians' very noble cause.

For Israel, what this means is negotiating an agreement with Palestinians as equals¸ not bullying them at the negotiating table with facts on the ground it only erected yesterday or some years ago. Israel must say "no" to the settlers. It must not abuse its stature as an occupying power to coerce Palestinians, for example, by withholding much-needed tax dollars when it disagrees with their legitimate means of diplomatic protest. And it must not cut off 1.5 million Palestinians from the world for the unacceptable actions of a few.

For the rest of the world, this means showing strength of leadership and getting tough with transgressors of our commonly held values, whether friend or foe. The world has been generous with Palestinians, backing our state-building efforts with robust financial investment, and it has been tough with Palestinians when it felt we strayed onto an undesirable path. We now need it to be equally demanding of our neighbor. Palestinians need the international community to hold Israel to its word when it says it desires the establishment of a viable Palestinian state. They need the world to take practical steps to keep the establishment of such a state possible. Wagging its finger at continued settlement activity is simply not enough.

Time for the Swing of the Pendulum

Thus, we are at a crossroads. A lot is riding on the choices we all make. Outcomes are not ordained or inevitable. We must seek to draw the right lessons from our experiences of peacemaking since Madrid. Now is not the time to abandon our vision of two states living side by side in peace and security, which became a matter of international consensus with President George W. Bush's speech of June 2002.

Instead, we should make adjustments. Since Oslo, the pendulum has swung too far away from what international law and justice prescribes, towards the diktat of practicality, towards what may be seen as acceptable to each of the parties to the conflict. This shift would not have been too problematic had it occurred in a context of parity of influence. However, with us, Palestinians, holding the shorter end of the stick, this disparity has necessarily meant erosion in our position with each round of diplomacy that did not end with a solution. This structural defect has to be redressed. It is time for the pendulum to swing back in the direction of what international law and justice requires.

Back in 1988, Palestinians made the historic and painful compromise that we felt was necessary to secure a solution to the conflict. As our Israeli neighbors think about what they consider to be painful compromises, it is hoped that they will devote equal time to reflecting on the promise that ending the occupation of all Arab territories holds: normalization not just with Arab countries, but with the 57 member states of the Islamic Conference who all endorsed the Arab Peace Initiative. That consideration will no doubt be aided by effective international engagement, with the U.S. leading the way in close partnership with the rest of the community of nations, especially the other members of the Quartet, as well as Arab countries. To me, this is the way forward. <

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