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One can understand Mahmoud Abbas rejecting the idea of declaring a Palestinian state next year. The Palestinian president feels obligated to the founding principles laid down by Yasser Arafat, and doesn't want to be remembered by history as the one on whose watch the Palestinians conceded even an inch of territory.

Abbas sees before him the vast achievements the Palestinians have made under his rule - the shift in U.S. policy, the rise of Jerusalem to the top of the global list of priorities, the criticism within Israel of the damage wrought by Prime Minister Benjamin Netanyahu and the verbal assault of French President Nicolas Sarkozy against him. He believes time is on his side, at least as long as Barack Obama remains president in Washington. The contest he is now waging against Netanyahu is not necessarily over the borders of a Palestinian state, but over which of them will be perceived as the ultimate refusenik, and who will be better received in America, Europe and world opinion.

Abbas, it seems, remains captive to the antiquated idea that ultimately, inshallah, Israel will simply collapse. He knows as well as anyone, however, that that mentality will not lead to a solution to the Mideast conflict.

If indirect talks with the Palestinians do begin this week, we will again see how both sides try to curry favor with the judge rather than conduct substantive negotiations. In the meantime, Abbas is saying all the right things to win that contest. He is demonstrating flexibility and hinting at a willingness to concede over the issues of refugees and land swaps. He is the "good guy" in this story, but nonetheless remains a leader without a state.

By contrast, Palestinian Prime Minister Salam Fayyad believes (and rightly so) that declaring a Palestinian state is one of most effective steps he can take toward reaching a regional solution. Fayyad wants to use the political capital the PA has amassed in world opinion to transform it from an "authority" to a state. This is a rational approach, one which will free the Palestinians from the question that hovered over every round of negotiations in which they have engaged until now - namely, how to convert the slogan of "two states for two peoples" into reality.

It will be a country whose circumstances are similar to those of others currently under occupation, like Iraq or Afghanistan - a state which wields sovereign authority, conducts elections, signs bilateral agreements and receives international recognition even if Israel refuses to acknowledge it, appoints ambassadors and commercial envoys, forms free-trade agreements and can demand a UN Security Council hearing on setting its borders. A Palestinian state will be able to transfer the venue for grueling peace talks from Jerusalem and Ramallah to New York and Washington.

The minefield that until now has compromised all negotiations - core issues like Jerusalem, borders, settlements and water - will remain, but will be negotiated by two states with equal status rather than between one state and an amorphous "authority." The new state need not have provisional borders - the declaration of Palestinian statehood will include all the territories of Palestine, including East Jerusalem. Regarding areas seized by Israel, a Palestinian state will need to decide for itself how to proceed, but will be able to make demands from the position of a full UN member state.

The year 2011 will be a critical one for Israel. U.S. forces will withdraw from Iraq and some from Afghanistan, and Israel will remain the only nation that continues to occupy another.

Unlike Abbas, Fayyad has identified the current window of opportunity, and apparently also knows that the diplomatic kaleidoscope could soon shift. A rare convergence of interests has now emerged in which the United States, Europe, the Palestinians, Arab states and all permanent Security Council members support the declaration of a Palestinian state, or at least will not object to it.

Even Israel's threat to annex the settlement blocs will no longer be considered valid. Such an annexation, given Israel's shaky international position, could lead to real sanctions. While Israel prepares for another round of ploys in its talks with Abbas, and both sides wrap themselves in their finest regalia ahead of their appearance before the Americans, there is no more appropriate step than declaring a Palestinian state to bring this puppet theater down.