Be modest and wise. Say little, do less.

The best that Israeli policymakers can do in the context of what is happening in the region is to say little and to do virtually nothing. And the best that interested outsiders can do is to avoid dreaming that this is the time for Israel and Palestine to negotiate seriously toward a comprehensive agreement.
There is much happening in the Middle East, but no one knows what it is or where it will lead. There are common elements. We hear about democracy, power to the people, and throw the bastard(s) out. However, those are the chants of crowds and not plans of action. Chances are that events will proceed differently in each country, and that nothing will be settled for quite some time. Those who initially seize power might not hold on to it. Secular intellectuals and political liberals will make themselves heard, along with Islamists and military personnel. Quite likely that there will be competition within each of these groupings, and efforts to arrange alliances between individuals of different sectors. Declared reforms may give way to power grabs. Initial governments by military personnel may yield to later demonstrations and some other kind of regime. Countries that presently are quiet may succumb to popular uprisings that have yet to crest.
Palestinians do not feel themselves immune from these events. An initial move to hold off dissent came from the regime in the West Bank changing the composition of its government and announcing--once again--elections in a few months time. It did not take many minutes for the regime in Gaza to ridicule their competitors, and announce that West Bank lackeys of America and Israel would not manage elections on their turf.
Advocates of peace make a fair point that Israel as the stronger partner should take the initiative in making proposals. However, it is also fair to note that Israel has made reasonable offers, most significantly in 2000 and 2008, with no apparent response beyond rejection from the Palestinians. 
The current situation makes Palestinians even less reliable. For more than a year they have used one or another reason not to enter negotiations despite the prodding and enticing of the Obama administration and others. 
One should understand rather than ridicule their reluctance. They are barely holding power in the West Bank, and under pressure from Gaza and the Palestinian diaspora. The Al-Jazeera leakage about Palestinian negotiations made modest concessions appear extreme, and caused the resignation of their senior delegate.
Those events suggest that this is not the time to look for a Palestinian partner. Moreover, the dynamics throughout the region keep Israelis and Palestinians from knowing what kind of support or opposition there will be for negotiations or concessions from those who can influence Palestinians.
One can doubt that clarity will emerge in a few weeks or months. It may take years before we know what will be the New Middle East. More Islamic, more anti-Israel and anti-Western, more concerned with social welfare, more or less concerned with Palestine? 
Honesty requires a shrug of the shoulders. Wisdom cautions a low profile. It is not a time for Israeli peaceniks, Barack Obama, or Thomas Friedman to insist that only a far reaching Israeli initiative can save Israel or the entire Middle East. It is also not a time for settlers and their friends to seek advantage in the uncertainty by planning another thousand residences on the other side of the wall, or beginning a court action to turn more Arab families out of their homes in East Jerusalem.
One can hope for modesty and wisdom from all these actors, without really expecting it.