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Prime Minister Benjamin Netanyahu is busy day and night, preparing Israel for a fateful confrontation with Iran. But his real problem may occur elsewhere. The territories are heating up, with the Palestinians escalating their protests against the settlements and the separation fence. The settlers, meanwhile, can smell Netanyahu's weakness and are undermining the authority of the state.

Two events in recent days indicate the threat of an outburst: the protest in Bil'in, which Palestinian Prime Minister Salam Fayyad participated in, where some of the 1,000 demonstrators tore apart a short portion of the fence; and the invasion of dozens of right-wing activists into the ancient synagogue of Na'aran, saying "we will return to Jericho and Nablus." In both incidents, the violence was limited and no one was injured. But the struggle over the West Bank has transitioned to a new stage.

Fayyad, the former darling of official Israel, is proving to be Netanyahu's most problematic rival. The one-time economist and technocrat has gradually become a politician - enjoying exposure, kissing children, stepping up to the head of the "White Intifada," as dubbed by researchers Shaul Mishal and Doron Matza in their article in Haaretz this week. On Monday, the Palestinian government adopted a plan of action for "non-violent opposition" to the settlements and the fence.

Fayyad's White Intifada is different from its predecessors. It has a clear political goal: Declaring a Palestinian state within the 1967 borders by the summer of 2011. By then, Fayyad will have completed the building of national institutions and will work on gaining international recognition through a diplomatic pincer movement on Netanyahu. He is receiving enthusiastic approval from the U.S. administration as a successful manager. Some 2,600 Palestinian policemen have already graduated from the training course run by U.S. General Keith Dayton in Jordan and are back in the territories, expecting to serve an independent state, not as subordinate agents of an Israeli occupation. The foreign ministers of France and Spain, in a joint article published yesterday in Le Monde, called to expedite the establishment of a Palestinian state and complete its recognition by October 2011.

The protests against the fence and the settlements, as seen through the lens of the international media, have a strong impact and present Israel with a dilemma. Its initial response was "to strike at the enemy in his home base": a wave of arrests of those who organized protests at Bil'in and Na'alin, and IDF raids in Ramallah to arrest members of the International Solidarity Movement. Israeli security officials explained to their foreign counterparts how these parties "present Israel with an existential threat." But these actions failed. The Palestinians were not deterred and continued to demonstrate, knowing Israel would not dare harm Fayyad and his people.

Netanyahu's next step will be a major public relations campaign against "incitement in the Palestinian Authority." But Fayyad is prepared for this: He holds a report from the U.S. administration giving him high marks on ridding Palestinian school books of anti-Israeli propaganda.

The prime minister's position is also worsening vis-a-vis the settlers, as the temporary settlement freeze approaches its planned end in September. Will he go back to building at full speed, as promised, and risk creating a rift with U.S. President Barack Obama? Or will he continue with the freeze and risk a settler intifada? Washington is concerned Israel could lose its control over the extremists in the settlements, and of a possible internal rift in the Israel Defense Forces, whose religious soldiers and officers may refuse to obey orders to evacuate or raze settlements.

Governments of the "world" are losing their limited patience with Netanyahu and his government, as the criticism in Europe for the "murder" of senior Hamas figure Mahmoud al-Mabhouh - even from the likes of a friend of Israel like Nicolas Sarkozy - has shown. The diplomatic process remains stuck, and the "economic peace" is exhausted. The Red Cross reported last week that the lives of Palestinians have not improved, and that "it is nearly impossible to have a normal life in the West Bank."

Netanyahu is in dire straits. His box of tricks is running out. The Palestinians and settlers are exploiting his weakness. The world does not believe him and questions his control on the ground. Unless he surprises everyone with a daring initiative that will restore control to his agenda, the prime minister will be facing a double intifada from Fayyad and the settler hilltop youth.