The crisis in US diplomacy with Israel and Palestine was the subject of an important discuss yesterday at the annual conference of the Middle East Institute. And the mood was decidedly pessimistic.

Khalil Shikaki, a Brandeis University professor who has conducted more than 100 polls among Palestinians in the West Bank and Gaza, focused on the decision by Mahmoud Abbas, the president of the Palestinian Authority, not to run for reelection in 2010. The decision by Abbas, which stunned the political universe in the Middle East, is a sign that the Obama administration’s Middle East diplomacy has run out of gas. It’s a surface indicator of the deep anger and unhappiness that is brewing throughout the Arab world over the administration’s seeming unwillingness or inability to force Israel to the table with serious concessions.

Shikaki said that the Abbas’ decision not to run is a “major turning point” in Palestinian history. “He decided to destabilize the situation as a way of moving forward,” he said.

For the past several years, said Shikaki, Abbas has scored important successes, but it was those very successes that, in face of Israeli intransigence, did him in. First, Abbas achieved important stability in the institutions of the PA, providing good financial management, strong institutions, and an end to the virtual anarchy that prevailed from 2000 until 2006. In 2006, he said, polls showed that just 25 percent of Palestinians felt safe and secure on the West Bank, while in 2009 more than 60 percent felt secure.

In regard to security, the Abbas administration terminated the freedom of various Palestinian warlords to operate with impunity, established an effective military and police chain of command, created a professional trained class of officers, and brought all of the PA’s security forces under civilian control. He also improved the justice system, cracked down on Fatah militants, eliminated the Fatah militia that operated outside of the PA’s control, and cracked down on Hamas militants. This latter action was not taken because of Israeli demands about Hamas, but because of feelings among PA and Fatah officials that Hamas is a rogue organization. Shikaki’s polls at the recent Fatah conference revealed that fully 95 percent of Fatah delegates identified Hamas as a “violent, coup-prone movement.” (Correctly, in my view.)

In addition, Abbas restored and improved U.S.-Palestinian relations. Most Palestinians looked favorably on the U.S. role in Israeli-Palestinian peace talks.

And, said Shikaki, Abbas renewed Fatah itself, casting out much of the Old Guard at the recently concluded 6th Congress. It was, he said, a “major transition in Palestinian politics.” Abbas brought back and reorganized the Fatah central committee and the Fatah Revolutionary Council as leadership bodies. And he made all of Fatah’s institutions stronger and better organized, with much more democratic accountability.

But after all that, Abbas discovered that it wasn’t enough. Indeed, by refusing to budge, Israel turned all of Abbas’ achievements into dust, making it seem like the PA was no longer a nationalist, liberation movement but – as co-panelist Daniel Levy, a former Israeli negotiator said – turning Fatah into an “occupation-maintenance” organization.

Particularly the coming to power of ultrahardline Bibi Netanyahu in 2009 forced Abbas’ hand. Recently, Abbas made the stunning revelation public for the first time that in 2008 he had come very close to a deal with former Prime Minister Ehud Olmert. Those talks, held in secret, included the exchange of maps from each side concerning the final borders of a Palestinian state. But with Netanyahu, none of that meant anything.

So Abbas has decided to blow everything up. By deciding not to run, he’s changed his game plan to “destabilization,” Shikaki said. Initially, he said, Abbas’ plan was to resign as PA president outright, and he’s still likely to do that soon. If he does, everyone in the PA will quit, effectively collapsing the system. “His vision is dead,” said Shikaki. “What he intends to do is to start shocking the system.”

Precisely because Abbas raised expectations among Palestinians, and because Fatah’s new institutions are more democratic and accountable, Abbas could no longer ignore the widespread perception among his constituents that a Palestinian state was still out of reach. By “shocking the system” Abbas hopes that he can force the United States to look more critically at the need for an Israel-Palestine accord, which will require Washington to turn the screws on its Israeli partner.