All of this is to say that Israel's leadership needs to accept (painfully) the futility of a purely defensive logic. Its best bet is to help create the conditions in which the Palestinian moderates are able to marginalize the fanatics with the help of a population that starts to see improving standards of living. That would mean making concessions and taking risks such as Menachem Begin did when he signed the peace treaty with Egypt in 1979, and in the way Rabin did when he signed the Oslo accords in 1993 and made formal peace with Jordan soon after.

Gaza's living conditions since the end of Israel's occupation have been dismal. One has only to read the articles of moderates in the Israeli daily Haaretz or the testimonies of Western observers to realize the bitter resentment that the 1.5 million Gazans must feel under Israel's drastic commercial and transit restrictions. The severe limitations placed on daily life in the West Bank are also a source of humiliation for many Palestinians. This is not to say that Arab terrorists who fire rockets against innocent Israeli civilians are justified, and it does not excuse the corruption and incompetence of the Palestinian Authority. But Israel's conduct does not help the Palestinian population place the blame where it belongs for Hamas' tyranny in Gaza and for Fatah's appalling governance in the West Bank.

One senses that since the fiasco of the attack on Hezbollah in Lebanon in 2006, Israel's leaders have spent time preparing for a more efficient assault on Gaza rather than pushing toward the solution that moderate Israelis and Palestinians know is the only workable solution: two states living side by side with Jerusalem containing two capitals, acceptance by the Palestinians of the fact that the refugees will not be able to return to what is now Israeli territory, and acceptance by the Israelis of the fact that their settlements in Palestinian territory will have to be dismantled.

In any "conflict between two rights" — as Amos Oz, Israel's leading novelist, has called it — the best outcome is one in which both sides end up with a certain degree of frustration, but not too much. With differences of nuance, today's Israeli leaders — Kadima's Tzipi Livni, the Labor Party's Ehud Barak and the Likud's Binyamin Netanyahu — are unwilling to move beyond the defensive frame of mind into which Arab terrorism has pushed millions of Israelis who not so long ago were willing to support more visionary and courageous leaders.

Alvaro Vargas Llosa is a senior fellow at the Independent Institute and the editor of "Lessons From the Poor." His e-mail address is AVLlosa@independent.org