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The dramatic August 13 announcement that the UAE and Israel would begin the process of fully normalizing all of their relations is both a significant blow and a sudden lifeline to a two-state solution between Israel and the Palestinians. That sounds paradoxical, but how the agreement impacts chances for a two-state solution will be entirely determined by the broader context in which it plays out in the coming years. To understand this paradox, let’s begin with why the two sides made the agreement, and why they did it now.

The immediate context was the looming threat of a large-scale Israeli annexation in the occupied West Bank. The Trump administration’s “Peace to Prosperity” proposal issued in January contemplated Israel annexing up to 30% of the occupied West Bank beyond the already de facto annexed East Jerusalem, including almost all Israeli settlements and the strategically crucial Jordan Valley. Any such move would permanently foreclose the prospect of a viable two-state solution because it would render any potential Palestinian state politically and economically nonviable and entirely surrounded by a greater Israeli state. There is no prospect of any Palestinian leadership accepting such an arrangement under almost any circumstances.

But even a more modest de facto annexation, such as the extension of Israel’s civil law (as was done in East Jerusalem) into major settlement blocs such as Ma’ale Adumim, Gush Etzion and even Ariel, would have effectively rendered Palestinian statehood territorially and politically unacceptable from a Palestinian point of view. And it would have established annexation, presumably with US support, as the new Israeli approach to the occupied territories, unilaterally and dramatically abrogating and indeed nullifying the basic Oslo agreements, particularly the 1993 Declaration of Principles which establishes the agreed-upon framework for negotiations and enumerates the final status issues.

Having vowed to immediately begin the process of annexation on July 1, as permitted under this coalition agreement with Benny Gantz, Prime Minister Benjamin Netanyahu seemed poised to act quickly this summer. However, a number of factors, including the coronavirus pandemic and quiet calls for delay and restraint from Washington, left him looking for a way out. The UAE – which had long contemplated a closer partnership with Israel to counter Iran and Turkey and to partner on technology and commerce – saw an opportunity. Having urged the Israeli public, directly, respectfully and in Hebrew in Israeli newspapers, UAE officials began an intensive dialogue with Israel in June, ostensibly brokered by the Trump administration.

The aspect of the agreement that provides an unexpected lifeline to prospects for a two-state solution is Israel’s agreement to hold off on any possible annexation. Netanyahu assured the Israeli right that he had only agreed to a temporary pause, but both the UAE and Donald Trump have strongly indicated that annexation is, in fact, “off the table” for the foreseeable future. Israel would clearly be potentially placing the agreement at risk if it moves forward with annexation anytime soon, and most Israelis seem to prefer the deal over annexation. And, why wouldn’t they? The agreement with the UAE arguably only formalizes an existing reality, but so would annexation. Annexation wouldn’t gain Israel anything it doesn’t already have in effect, and it would come at a considerable cost. Normalization with the UAE, on the other hand, has potentially very significant strategic and commercial benefits for both sides in the coming years given that only limited forms of cooperation can be effectively conducted behind the scenes. Now, the sky’s the limit for the two most technologically sophisticated and ambitious Middle Eastern countries.

If annexation really would have been the ultimate, almost irreversible final blow to a two-state solution, placing what increasingly looks like a semi-permanent freeze (especially if Joe Biden wins US election in November) on the process logically must have salvaged the potential for such an eventual agreement, no matter how remote it may seem at the moment.

On the other hand, Palestinian outrage is certainly understandable. The UAE has just shattered the main leverage they believed they still had with Israel: the Arab consensus that the 2002 Arab Peace Initiative (API) defined the basis for any additional Arab diplomatic outreach to Israel. The API proposes full normalization between Israel and the entire Arab world, and, given its later adoption by the Organization of Islamic Cooperation, virtually the entire Islamic world as well, in the event of a two-state Israeli-Palestinian peace agreement. Over time, the API was amended to include the possibility of mutually-agreed land swaps. In recent years, the understanding even grew that these could be implemented over time, with significant Israeli moves towards ending the occupation or ameliorating conditions for Palestinians on the ground met with limited Arab diplomatic outreach to Israel that set the stage for eventual normalization.

However, the UAE’s agreement to move forward with normalization not only in the absence of any progress towards ending the occupation but, rather, to forestall annexation the Palestinians regard as outright theft – a move Israel not only had not taken but was moving away from – appears to the Palestinians to remove their last significant nonviolent leverage over Israel other than the mere fact of their continued existence. Given that the API had increasingly come to be the bedrock of the Palestinian’s own diplomatic position, the extent of the disaster for the Palestine Liberation Organization is hard to overstate.

But there’s another way of looking at it. Because so much activity was going on between Israel and several Gulf Arab countries, including not only the UAE but also Oman, Bahrain, Qatar and even Saudi Arabia, arguably the API was simply a comforting illusion for Palestinians. If the commitment to the agreement by Gulf countries and others, such as Sudan and, perhaps, Morocco, was a convenient fiction, perhaps it’s better to dispense with deception and self-deception. Moreover, history suggests that the two Arab countries (the complex case of Mauritania excluded) which have diplomatic relations with Israel, Egypt and Jordan, have been far better able to cure specific Palestinian interests on the ground, including in Gaza, than Arab states that keep Israel at arm’s distance.

Some other Arab countries are likely to follow suit, most notably Bahrain and Oman, probably Sudan and possibly Morocco. The big prize, Saudi Arabia, will probably not even consider such a step as long as King Salman, who is committed to the API and the imperative of Palestinian statehood, remains on the throne. When and if his son, Crown Prince Mohammed bin Salman, ascends to the throne, a Saudi-Israeli rapprochement might be imaginable, particularly given a shift in generational thinking and much of the Arab world regarding Israel, depending on a wide variety of regional circumstances. Saudi Arabia has a far broader set of strategic considerations and political and diplomatic vulnerabilities than any of these other countries, and the strategic equation for Riyadh may or may not make sense when the time comes.

The UAE-Israel normalization process may lead some other Arab countries to follow suit, but not very many for now. It seems to pull the rug out from under the Palestinian’s diplomatic and strategic calculations, but it seemingly preserves the potential for a two-state solution into the foreseeable future. And, if it’s so inclined, the UAE is now much better positioned to negotiate on behalf of policy and interests with Israel than it was before. Whether this is a net plus or minus for peace between Israel and the Palestinians must therefore be considered an entirely open question.