Benjamin Netanyahu has in effect concluded his term as prime minister. It's all downhill until the next elections, without any achievements and without an agenda, passing the time buying political calm and deflecting diplomatic pressure. Instead of initiating and leading, Netanyahu will engage in fruitless holding actions until he falls from power.

The bewilderment and paralysis were apparent in Netanyahu's interview Monday with Channel 10 on the patio of his official residence in Jerusalem. He violated the first rule of political life: When you don't have anything to say, it's better to keep quiet. The prime minister came to the interview without any new message, without a way forward, and he wasted his airtime trying to dispel the contention that he's the dishrag of Foreign Minister Avigdor Lieberman and his own wife, Sara.

When the prime minister gives an interview just like that in the middle of the week, it's a clear sign he's fairing poorly and no one is willing to stand up for him on the air. The announcement of the resignation of his communications adviser, Nir Hefetz, two hours after the embarrassing interview, only reinforced the impression that Netanyahu is isolated and there is no one to speak for him publicly.

Over the past two weeks, in the run-up to the vote on the last budget of his current government, Netanyahu has been kicked around by his coalition partners. As is his habit, he tried to satisfy them all. He gave Yisrael Beiteinu's Lieberman the army conversion law. Shas' Eli Yishai got stipends for yeshiva students and Labor's Ehud Barak got more money for the defense budget.

Each defeat reinforced the impression that Netanyahu was being led by the nose. Twice he was forced to announce that diplomatic statements by Lieberman and Defense Minister Barak "do not represent the government's position," after Barak divided Jerusalem and Lieberman said any final peace agreement would lead immediately to a breakup of the coalition.

Netanyahu has only himself to blame for his sorry state. The breaking point where his collapse began came last summer when he rejected Kadima leader Tzipi Livni's offer to join the government instead of Lieberman. Netanyahu preferred Livni as the head of a groggy opposition over the threat of Lieberman, who might be able to steal the right-wing electorate from the prime minister's Likud party.

If he had marshaled the courage to reconfigure his coalition and engage in an intensive peace process with the Palestinians, international pressure on Israel would have ebbed and the prime minister would have been portrayed as a leader and trailblazer. But Netanyahu took refuge behind his "natural partners," Lieberman and Yishai, and behind his Republican friends in the U.S. Congress, rejecting President Barack Obama's initiative for expedited negotiations on the future border between Israel and the Palestinian state. Netanyahu defeated Obama but suffered a double loss himself. He was not only left without an agenda, he also projected weakness and encouraged Lieberman to abuse him publicly.

Netanyahu attributed his failure during his first term as prime minister to his reticence to form a national unity government. It's a shame he hasn't learned the lesson and has repeated the same mistake in his current term. The ridiculous contention that the political alliance with Barak is a kind of national unity government has not convinced a soul. The shattered Labor Party is not a counterweight to the coalition parties on the right. Netanyahu pretended for a moment to represent the political center when he embraced the concept of two states for two peoples and froze construction in the West Bank settlements. But at the moment of truth, he remained in his natural home with the extreme right.

In a moment of candor in his interview on Monday, Netanyahu complained that he was being judged over the diplomatic stalemate and that his economic achievements were being ignored. "The Palestinians," he said, "are not ready to move forward to peace, so the whole country is 'stuck.'" If that's so, Palestinian President Mahmoud Abbas has succeeded in his plot to do nothing until international pressure undermines Netanyahu. What can be done? Israeli prime ministers are evaluated based on their success in settling the conflict with the Arabs rather than their devotion to the status quo.

From now on, the agenda is changing. Instead of cultivating false hopes for a peace agreement, the international effort should be geared toward heading off a war. Netanyahu is cautious in using military force, but election years have always been prone to military escalation. Obama will have to redouble his supervision of the prime minister to head off an Operation Cast Lead II or Israeli action in Iran.

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.

Let's assume the optimistic forecast by special U.S. envoy George Mitchell comes true and in two years the establishment of an independent Palestine is declared at a ceremony. The event will be broadcast on prime time, but most Israelis will opt to view "Big Brother 6," "Survivor 7" or whatever the next television hit is. Viewers will behave this way not because they oppose a Palestinian state but because they are indifferent. Palestine-shmalestine simply does not interest them.

Most Israelis today are cut off from the conflict with the Palestinians and do not interact with them. From their point of view, the Palestinians are blurry figures during TV newscasts: Mahmoud Abbas and Ismail Haniyeh speak, women covered from head to toe mourn in a tent, men run with a stretcher after an ambulance, men concealing their faces fire Qassam rockets. Israelis have no interest in knowing anything further. Nablus and Ramallah are about 40 minutes by car from Tel Aviv, but in the eyes of Tel Avivians they are on a different planet. New York, London and Thailand are much closer.

The settlers beyond the separation fence are the only Israelis who see Palestinians, mostly through car windows on the roads they share. The settlers, like the Palestinians, are disconnected from the residents of the Tel Aviv region, Haifa or Be'er Sheva, who hardly ever cross the fence. They have no business in Elon Moreh, Yitzhar or Psagot. The big settlements like Ma'aleh Adumim and Ariel can be reached almost without having to see Palestinians.

The policy of isolation is the real legacy of Ariel Sharon, who built the fence in the West Bank, left the Gaza Strip and pushed the Palestinians out of the Israeli labor force. Sharon did not believe in peace and was not interested in links with the "Arabs." All he wanted was to protect the Jews from attacks by their "bloodthirsty" neighbors. Keeping them out of sight lets Israelis live as if there were no conflict, with only settlers on the periphery and soldiers on the firing line.

The "demographic problem" also is not frightening when it is locked up behind walls and fences.

In the past Israel's economy relied on Palestinian workers, but only older Israelis remember them at restaurants, construction sites and gas stations. Here and there one can still find friendships; waiters at Restaurant 206 in Kiryat Shaul sometimes gather their tips for a Palestinian friend who once waited tables and is now besieged in the Gaza Strip. Stories like this are almost part of folklore. The Israeli economy is geared toward Wall Street, not Shuhada Street. The stock market is hardly affected by routine security issues, and real estate prices are flying high as if this were Hong Kong, not a country under threat on a constant war alert.

The Israel Defense Forces, who sent generations of Israelis to the territories, has minimized the exposure of its soldiers to the Palestinians. Fewer and fewer people do reserve duty, and even fewer in the West Bank. The regular army has minimized the activities of its units in the territories and transferred much of the policing duties in the West Bank to the Kfir Brigade. Air force crews, who carry the burden of the fighting in the Gaza Strip, see the Palestinians as silent spots on their screens fed from drone footage.

Entertainment intensifies the gap in the way Israelis have come to regard their country, and the way it is seen in the world. The local media describes Israel as a Western high-tech superpower, an annex of Manhattan and Hollywood. The foreign media covers the conflict: terrorist attacks and assassinations, settlements and peace talks. When the Israelis who have never visited a settlement see themselves on CNN they are offended: We are not like that. This is anti-Semitic propaganda.

Foreigners visiting Israel are amazed to discover the degree to which reality here is disconnected from what they heard at home. They expect a violent apartheid state, and are surprised that the toilets and buses are not separate for Jews and Arabs. They imagine a conservative, buttoned-up society and are shocked by Tel Aviv's nightlife. They walk in the street and realize that in London or Paris they see a lot more Arabs than in most Israeli cities.

Because of the entertainment and indifference, the government doesn't face public pressure to pull out of the territories and establish a Palestinian state, and the opposition to the American peace initiative is being led by the extremists on the right. Most Israelis simply don't care; they gave up on the territories a long time ago. If Mitchell succeeds in his mission, they will hear about it and change the channel.

I could hear the prime minister's familiar voice on the telephone. "I want to advance a peace agreement with the Palestinians. I am capable of achieving an agreement. I have the political will inside me," Benjamin Netanyahu told me. He repeated this message during his speeches at the conference of Jewish communities in Washington and at the Saban Forum in Jerusalem: great concessions, generosity of spirit, territorial compromise, let's start negotiations and surprise the world, he said.

I believe him. Political leaders are tested on a public message that they are willing to defend in front of cameras and microphones. Experience shows that there is a correlation between what is said on stage and discrete whispers behind closed doors. Conclusion: Netanyahu's peace talk is meant to prepare the political pundits and Israeli public opinion for a political move, which he presented to U.S. President Barack Obama during their meeting last week.

Netanyahu is motivated by a number of things:

The Strategy: It appears that Netanyahu is preparing for war against Iran and Hezbollah in the coming spring, when the snows melt and the clouds clear. Evidence of this is the additional defense budget and the home front's preparations for a confrontation. And even if in the end Netanyahu doesn't strike, he must be ready. It is better for Israel to fight on fewer fronts and neutralize enemies through diplomacy.

Popularity: According to the Haaretz-Dialog survey published Friday, most Israelis want a settlement with the Palestinians and are willing to talk to Hamas, but prefer that the negotiations be handled by a right-wing government. Netanyahu is popular, and currently no politician is threatening to take the public's support away from him. If he moves forward in a political process, he will be meeting the public's expectations, as he had done in his declaration for "two states for two peoples" and in canceling the drought tax.

Politics: Netanyahu fears a breakdown of the Labor Party, which may take it out of the coalition and leave him with only his "natural partners," who oppose a settlement, and without Defense Minister Ehud Barak, whom the prime minister wants next to him in an expected confrontation with Iran.

Netanyahu needs to give Labor enough slack so it can stay in his coalition, as he did when he responded to Barak and came out against Justice Minister Yaakov Neeman's plan to split the role of the attorney general.

The World: Israel's international isolation is becoming more difficult. Credible negotiations with the Palestinians, especially if they are accompanied by the "generosity" that Netanyahu promises, will remove the Goldstone report from over Israel's head and with it the threat of being boycotted and condemned. They will also contribute to the rehabilitation of relations with Europe, Turkey and Jordan.

It is true that Netanyahu can trick them all and buy time with empty negotiations until he makes up his mind whether to attack Iran, or until Obama is deep in the race for a second term and leaves him be.

Netanyahu knows that he is not believed and says: I don't want a peace process for the sake of the process, but to bring an end to the problem.

He can trick the journalists who, in the worst-case scenario, will write things against him. But it is hard to believe that he will try to cheat the president of the United States and make false promises.

The deal that Obama is offering is clear: a diplomatic struggle against Iran and defense backing for Israel - in some areas even more than what was on the table during the Bush administration - in return for a pullout from the territories and a Palestinian state.

Netanyahu understood this and still insisted on meeting the president, even at the cost of public humiliation, to tell him that he wants to push forward on a settlement with the Palestinians. He spoke with him about "concrete steps" and made his promises public. Why would he do this if his intentions were not true?

The prime minister is lonely. Palestinian President Mahmoud Abbas avoids him. His senior ministers are not thrilled by the prospect: Barak leans toward Syria and Foreign Minister Avigdor Lieberman looks down on negotiations with the Palestinians.

It is not clear if Netanyahu has a negotiator who can cobble together a deal, as Moshe Dayan was for Menachem Begin and Shimon Peres for Yitzhak Rabin. Every political leader needs a court diplomat, a Henry Kissinger of sorts. Barak and Ehud Olmert carried out the negotiations on their own and crashed.

But these problems can be resolved. The minute Netanyahu is convincing that he is serious and has a serious peace plan and not mere slogans, the political world will be shaken up, and those supporting a settlement with the Palestinians will back him. This is his challenge. He convinced me; let's see him convince Abbas.