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Speaking at the Sharm summit this week, Prime Minister Ehud Olmert seemed to hit all the right notes - empathy, generosity, a passion for peace. It was a nice speech, lacking only one thing: relevance to the regional strategic environment. This absence of a realist policy outlook is hardly unique to Mr. Olmert. Much of the left still clings to the "heap everything on Abbas' shoulders" approach that is at least two years past its sell-by date, while more and more of the right is flirting with a "give some of the West Bank to Jordan" idea that was buried 20 years ago (by the Likud itself!). Olmert's people will repeat the mantra that he will work sincerely, if cautiously, with the region's moderates to defeat the extremists, and yet the former appear ever-weaker and the latter ever-bolder. It is a policy operating on autopilot, and it is not working.

Three leaders racing against the clock (George Bush, Mahmoud Abbas, Olmert) may attempt a dash to the finish line of a ceremonial declaration of Palestinian statehood - with the help of their new envoy - but this is hardly a recipe for sustainable peace and security.

What is missing and needed is for an Israeli school of realism to emerge, capable of addressing the new challenges of the region. This realist school should set out four strategic goals for Israel: to stabilize Israel's security environment; prevent Al-Qaida copycats from gaining a foothold on Israel's doorstep; pursue an end of occupation that will allow for realization of permanent, agreed, recognized and legitimate borders on all fronts; and more effectively isolate the Ahmadinejadist wing in Iran's leadership. These goals are of course interlinked in many ways, and although this is not the place for a detailed blueprint, here are some guidelines for pursuing them.

The key place to begin is in rethinking the policy of driving the friendly leaders of deeply divided neighboring states or pre-states further toward a politics that is ungovernable and irreconcilable. This applies to the Palestinian Authority and Lebanon, each in its own way. Abbas and Fouad Siniora are both being driven (politically) off a cliff. Locking them in to the "moderates' embrace," rather than facilitating a difficult domestic political accommodation, is not a way to advance stability, security or Israel's interests. The consequence, already witnessed, is a combination of pushback from powerful domestic constituencies, often directed at Israel, and the emergence of Al-Qaida wannabes in the space created by the political vacuum, chaos and alienation.

In the Palestinian arena Israel should recognize that more is less - the more we hug Abbas the less he can deliver; and that less is more - the less we interfere in Palestinian politics the more likely it is to produce a stable outcome that can be a so-called "address" for Israel. A comprehensive cease-fire should be pursued and then respected, which of course includes Hamas. Single-party Fatah rule cannot be reimposed, Hamas is here to stay, an accommodation that serves Israel can be reached, and the splinters thrown off by an effort to crush Hamas will be extremely painful.

This conflict, even with Hamas, is not about an absolute rejection of the "other" or clash of civilizations. It remains grievance-driven - and can be resolved by ending the occupation. The alternative framing plays into the hands of Al-Qaida. Palestinian power-sharing and a new unity government, now more complicated, still offers the best way forward for stability, the two-state solution and Israeli security. This idea is already being floated by elements in Hamas, the Arab world and even Fatah. It makes Abbas more, not less, relevant.

On Israel's northern border, roles have been reversed: We used to need a Syrian arrangement for peace with Lebanon; now we need a Lebanese arrangement for peace with Syria. That was the message from the Bush-Olmert meeting. The American president will apparently cling to the Cedar Revolution until Lebanon resembles Iraq, there will be no serious U.S. engagement with Syria and therefore no Israeli-Syrian peace process. But the appearance of Al-Qaida-inspired Fatah al-Islam in Tripoli and the Jund al-Sham and Usbat al-Ansar in Sidon should focus minds in Jerusalem.

The political stand-off in Lebanon and potential for escalation and collapse is regionally destabilizing. Here, too, a political deal that recognizes the Lebanese reality should be brokered, and if Jerusalem needs to explain this to Washington, so be it. While Lebanon will certainly not be handed back to Syria, all sides will have to swallow hard and reach an ugly compromise, including on the Hariri tribunal.

Discussions with Syria will not only have an impact on the Golan and on Hezbollah's options, but also facilitate movement on the Palestinian track and effect Hamas' calculations - helping to create a positive and mutually re-enforcing regional trend. Israel would then also be in a position to reap benefits from the Arab League initiative.

Which brings us finally to Iran. There are additional things Israel can do to isolate the "messianic" and dangerous Ahmadinejad tendency, beyond the promotion of sanctions. Israel should avoid ratcheting up the military rhetoric that is a gift to Ahmadinejad, while pursuit of the above regional strategy would undermine the effectiveness of playing the anti-Israel card and limit Iran's capacity to interfere as a regional spoiler.

As he attempts to re-launch his premiership, Ehud Olmert needs to think big, regional and realistic - not narrow, parochial and dogmatic.

Daniel Levy, a senior fellow at the New America and Century Foundations, was previously an adviser in the Israeli PMO and lead drafter of the Geneva Initiative.