Recent developments, especially last week’s conflict with Israel, have transformed the Palestinian political landscape in favor of Hamas in Gaza and at the expense of the Palestinian Authority in the West Bank. Palestinians are facing a momentous choice: the path of diplomacy and institution-building championed by the PA, or that of confrontation and armed struggle championed by Hamas.

For the Palestinians this is a strategic choice, but also one of values. But essentially the same choice is facing the other key actors: the United States, Israel and the Arab world. How we choose to influence Palestinian political realities will have a profound impact on our vital national interests. Like everybody else, we have to decide which group of Palestinians we want to empower based on our own values and national interests, and act accordingly.

Hamas struggled after its break with Syria and strained relations with Iran. But it has managed to regroup and is beginning to take advantage of the rise of Islamist movements in countries like Egypt and the new patronage of Qatar.

Its recent reckless conflict with Israel cost over 150 Palestinian lives, mostly civilians and many children, and hundreds of millions of dollars in damage. Yet they are trumpeting it as a kind of “victory,” because they fought Israel and survived.

Hamas has also made diplomatic breakthroughs of its own, with high-level visits from Qatari, Egyptian, Tunisian and Turkish officials. It may be finally succeeding in eroding the consensus that the Palestine Liberation Organization is the “sole legitimate representative of the Palestinian people,” or even positioning itself to take a leading role in a reconstructed, post-“Arab Spring” PLO.

In the wake of the Gaza conflict and the run-up to the new Palestinian United Nations initiative scheduled for later this week, how all parties act and react will determine whether the PA can continue to govern in the West Bank, or if it runs the real risk of either collapse or atrophy to the point of irrelevance.

The PA is, frankly, broke, alienated from its Western allies and lacking any clear strategic or political options. PLO miscalculations played a huge role in creating this dire circumstance. Prompting an American veto on settlements at the U.N. Security Council in February 2011 only served to anger the U.S. and give Israel a free hand to build. The west responded to the failed PLO U.N. membership bid of 2011 by cutting aid to the PA, leading to the ongoing financial crisis in the West Bank.

For all its promise and successes, Prime Minister Salam Fayyad’s PA institution-building program has foundered given the funding crisis. Meanwhile, the peace process with Israel is at an impasse. As a consequence, Hamas has been able to spin a devastating and completely avoidable conflict with Israel as a demonstration that it has a vision, the will to fight, reliable patrons, and diplomatic and political momentum.

The Obama administration and Israel miscalculated as well. The settlement freeze demand was, after all, an American one. The Palestinians could hardly be less opposed to settlements than the Americans were. Indeed, Palestinian President Mahmoud Abbas could not pivot away from a settlement freeze as a condition for further negotiations as easily President Barack Obama could and did. Abbas unwisely did not leave himself a way out, as the Americans played fast and loose with an incendiary issue, only to leave the Palestinians to deal with the resulting political firestorm.

Israel, too, has played a major role in isolating, impoverishing and humiliating the PA. Israeli relations with Hamas are straightforward: limited military confrontations, prisoner exchanges, and so forth. No prospect of politically difficult negotiations about borders, settlements, Jerusalem, Palestinian statehood or anything like that.

One can only hope this is not a conscious effort to promote a new version of the familiar old implacable Palestinian non-partner for peace, perfectly suited to expanding and consolidating Israel’s occupation and settlement project.

Palestinians must choose. But any stateless people seeking freedom—and trapped in an apparent binary between going down in a “blaze of glory for God and country” or standing by impotently as occupying forces colonize their lands and punishes their diplomatic efforts—can be expected to eventually opt for the former. They must have a third option: success through negotiations and cooperation that yields short-term quality of life improvements on the ground and long-term prospects for peace and independence.

It is therefore urgently important from a Palestinian point of view for Ramallah to repair its relations with the West immediately. But this rapprochement is also crucial for the West and anyone in Israel who doesn’t want the Palestinian cause to be dominated by Hamas. Everyone will have to play their part to avoid this now very real possibility.

The PLO, if it must go ahead with an initiative at the U.N. in the coming days, should make it as non-confrontational as possible. It should provide reassurances about not seeking, at this stage, to join additional U.N. agencies or the International Criminal Court. And it should seek as much European support as it can muster.

The Obama administration should not only react judiciously, it should also try to persuade Congress not to overreact either. Israeli retaliation of some kind is probably inevitable, but American influence can do much to attenuate the damage it causes.

The Obama administration has apparently already warned Israel against building in the sensitive E-1 corridor in the occupied West Bank as “retaliation.” Israeli officials are reportedly complaining that the U.S., in its own interests, appears to be understanding the need for restraint.

These indicate a welcome U.S. recognition of the profound dangers that an overreaction to whatever the PLO does at the U.N. in the coming days might play directly into the hands of Hamas and let them argue that “armed struggle” succeeds while negotiations and diplomacy fail. But the Administration will also have to convince Israel and Congress to think in terms of enlightened self-interest, rather than reflexive anger.

Abbas has said that after the U.N. resolution, he is prepared to return to negotiations with Israel without preconditions. This means, at last, dropping the settlement freeze demand. This is an important potential starting place for the indispensable rapprochement between Ramallah and Washington.

The near future will test everyone’s seriousness about preserving the viability of a two-state solution. The PLO must work hard to make its U.N. initiative as non-confrontational as possible. The Arab states encouraging them must help the PA absorb any backlash in further aid cuts. The Obama administration and Congress must not overreact. And if Israel doesn’t actually prefer dealing with Hamas rather than the PA, it has to adjust its policies and attitudes right away.

Palestinian national reconciliation is inevitable. The question is, on whose terms will it be? Upcoming decisions by all parties, including the Palestinians, the Arabs states, the United States and Israel, will determine the outcome. And we will all have to live with the consequences.