Predictably, Israel and the U.S. have reacted to the news of a Hamas-Fatah reconciliation deal using an outdated lens, whereby the inclusion of Hamas in any Palestinian government rules out the possibility of a negotiated two-state solution. That is most likely true, but it is also irrelevant. The real impact for Israel of the Hamas-Fatah deal, assuming it holds up, is not in its effect on the short-term possibilities, where no peace deal was forthcoming regardless. The impact is on the long-term choices Israel faces. Before the deal, the alternative to a two-state solution was a one-state apartheid system that signaled the end of an Israeli democracy. Now the alternative to a two-state solution, if one exists, is Fortress Israel, which signals the end of any hope that Israel might integrate into its neighborhood.
If this sounds familiar, that's because it is: It's the way things looked before the 1967 War forced the region's leaders, if not its people, to accept the reality of Israel's continued existence. The height of that acceptance was the Arab Peace Plan, but rather than use that offer of a regional accommodation to create a broad set of strategic facts on the ground, Israel pursued a short-sighted strategy of creating a narrow set of geographical facts on the ground, in the form of its West Bank settlement policy. The Hamas-Fatah deal illustrates the degree to which that opportunity has been squandered.
Israel might have been able to impose an apartheid system on a West Bank governed by a U.S.-leaning Fatah, while benefiting from Egypt's help to smother any resistance in Gaza. But the reconciliation deal suggests that both of those pillars of the status quo are now in question. Fatah has apparently internalized the lesson that relying on Washington for a peace deal with Israel is a mug's game. And Egypt is reorienting its regional posture to more effectively pursue its interests.