Israel and Hamas are currently locked in a perpetual standoff. Hamas is emboldened by the flurry of international attention on the situation in Gaza, despite the improved conditions following Israel’s easing of the blockade after the first flotilla episode and Egypt’s opening of the border crossing.The Hamas-Fatah unity talks, albeit on hold and in danger of collapse, have aided the transformation of the international narrative from viewing Hamas as a terror organization to viewing it as a “legitimate political party.” So has Hamas’s refraining from violence against Israel.However, without an outright rejection of terror, and recognition that Israel cannot be destroyed, Hamas’s growth as a political force for the Palestinian people will remain limited and potentially mired in failure.Similarly, without Israel recognizing that lasting security is unlikely unless Hamas is included in the political process, efforts to advance a two-state solution will be fruitless. Overcoming these obstacles will require new thinking to find a formula that enables each side to save face in altering its position and moving forward in a political process.Hamas has been strengthened by the international community’s increasingly discarding the notion that it is a terror organization and realizing that it must be brought into a political process if efforts to achieve regional peace and security are to succeed. The recent attempt to deliver aid via a second flotilla (and when that failed, via a “flightilla”) was not about delivering aid, but about demonstrating solidarity with the people in Gaza. Despite its failure to reach Gaza, the international attention the activists received is itself a victory for Hamas, in the portrayal of itself and the people of Gaza as innocent victims of a cruel Israeli oppression.GAZA’S ECONOMY jumped by 16 percent at the end of 2010 after Israel eased the blockade last summer, but nearly 70% of the population still relies on handouts, and nearly half of the workforce remains unemployed.Today, the focus on Gaza is on the economic situation, not on Hamas’s rejection of Israel’s right to exist or its refusal to release captured soldier Gilad Schalit.Hamas has been further strengthened by the ongoing Palestinian unity talks, which it has entered without relinquishing any of its avowed positions to oppose peace with the State of Israel.However, its recent gains may be reaching an apex.First, the unity agreement with Fatah is in jeopardy today over Hamas’s refusal to keep Salam Fayyad as prime minister, and to adopt a technocratic government that might be acceptable to the Palestinian Authority’s Western donors. A recent poll by the Palestinian Center for Policy and Survey Research indicated that 61% of Palestinians want “the new government of reconciliation to follow the peace policies and agendas of President Abbas and the PLO rather than Hamas.”Another poll by the center indicated that 45% prefer that Fayyad remain prime minister, as opposed to only 22% support for Hamas’s candidate, Jamal Khodari.And since nearly 60% of the Palestinian public expects the unity agreement to succeed, Hamas risks being blamed for its failure.Second, the group’s recent downplaying of efforts to gain a unilateral declaration of statehood at the United Nations is not shared by the public. This week, Hamas Prime Minister Ismail Haniyeh called the plan for statehood “a mere mirage,” but 65% of the Palestinians support the move. Whereas unity talks were initially seen as a mechanism to improve the prospects of the UN move, Palestinians are increasingly realizing that Hamas could be placing the UN effort – and future international aid – in serious jeopardy.Third, Hamas has been weakened by the uprising in Syria, which has thrust the group’s patron Bashar Assad into a fight for the survival of his regime – a regime that has consistently provided political and logistical support for the organization and asylum to its leaders.Most importantly, Hamas’s growth is stuck between two realizations.The first is that under no circumstances can Israel be destroyed. Even more, Hamas knows that should it reengage in a campaign of terror and seriously threaten Israel, Jerusalem will not hesitate to respond by decapitating its leadership in an effort to wipe out its core structure, regardless of the international condemnation that would likely follow. Furthermore, as long as Hamas wears the “terror group” label assigned to it by the Western world, its ability to shape the future of Palestine will remain handicapped.The second realization is that Hamas, too, cannot be destroyed. Indeed, although its public support has been steadily declining during the past several years and it may not garner more than 25% of the votes if elections were held today, it remains a strong grassroots movement. Whether through a unity government or free and fair elections, Hamas and its ideology of “resistance” will persist as a potent force in the Palestinian body politic. The question facing Hamas today is how to reconcile these two contradictory realities: that the organization will endure, but its ultimate objective will never be fulfilled.A SIMILAR question regarding Hamas faces Israel.Israel has succeeded in containing Hamas’s violent activity, including rocket attacks, due to its considerable deterrence, but it is at least in part constrained by the international opprobrium that has followed its blockade of Gaza, which has further served to strengthen Hamas’s position in the international arena.The result of this policy limbo gripping both sides is a hardened status quo. Each side remains vigilant and troubled by the actions of the other, but is unable simply to wish its adversary away. At the same time, neither Israel nor Hamas is prepared to publicly recognize this fact and adjust its policies accordingly. Therefore, instead of re-framing policies and public narratives, each side is merely treading water by maintaining these contradictory postures.What is needed is a face-saving way out of this deadlock.The status quo will not produce peace or security.If Israel wants peace with the Palestinians based on a two-state solution, now or in the future, it cannot make peace with half of the Palestinians and leave Gaza out of the equation. Even if the PA manages to gain recognition without a unity agreement in place, what kind of divided state will be created? Meanwhile, if a unity government is achieved, the US and a number of European nations will have the pretext to oppose the UN initiative on the grounds that Hamas has not met the three Quartet conditions: renouncing violence, recognizing Israel and accepting past agreements.If Hamas loses any hope of becoming a player in shaping the Palestinian national cause, the group is likely to upset the process in order to maintain its relevance.That is why new thinking must be applied, to create a face-saving formula that would enable each side to adjust its positions.The long-dormant Arab Peace Initiative could serve as the basis for such a formula. The initiative could enable Hamas to soften its stance on the political process with Israel by aligning itself with the stated position of the entire Arab League, but without having to relent on its long-held opposition to the three Quartet conditions. In turn, the Israeli public, notwithstanding the objections of the Netanyahu government, should be persuaded to accept the centrality – even the indispensability – of the Arab Peace Initiative in principle as the basis for renewed negotiations with all who support it as a framework for talks.Israel could do so with its own reservations that aspects of the Initiative, like the ultimate state of Palestinian refugees and secure borders, as in the past, must be negotiated. In fact, doing so could provide Israel with a more generic formula for talks than the security and borders-first approach advanced by President Barack Obama. The acceptance of the Arab Peace Initiative by each side – indeed, by either side – would be a gamechanger that could inject life into the Palestinian movement on the one hand, and represent an Israeli initiative, which many are calling for, on the other.Creating such a game-changer will require not only political leadership on the part of Israel and Hamas, but also outside pressure and encouragement.THE US, with the support of the EU, should be pressing Israel to adopt this formula. Bearing in mind that the Netanyahu government is not likely to make any progress toward a two-state solution, these efforts must begin now in preparation for the next Israeli elections in late 2012. To be sure, educating the Israeli public about the critical importance of the Arab initiative and the perilous impasse the Netanyahu government has created would engender vitally important discussion about the desperate need for a change.Meanwhile, the Arab states, especially Egypt and Saudi Arabia, must press Hamas to do the same. Given Hamas’s increasingly precarious situation in the wake of what is happening from within and outside the organization on a regional scale, its leadership is also looking also for a face-saving way out. The Arab plan could offer Hamas exactly that – not only because it allows the organization to join the Arab fold, but also because of its changing posture toward a solution to its conflict with Israel, which has become increasingly closer to the Arab initiative. As I indicated in previous writings, Turkey, too, could play a significant role in persuading Hamas to make the leap at this juncture.Since the Gaza war, Israel and Hamas have been engaged in a chess game, with each side making marginal gains, and losing critical pieces vis-à-vis the other side. Today, they are in a deadlock, with neither side able to put the other in checkmate. The Gaza war showed clearly that Israel cannot destroy Hamas, just as it showed that Hamas’s acts of terror have enormous consequences for the Palestinian people. While the current standoff appears sustainable, it is not. Beginning a detente between the two sides will require finding a common denominator that could be utilized as a face-saving measure.The Arab Peace Initiative can and should serve as this denominator. Israel and Hamas today are not politically prepared to accept it, but their friends and allies in the US and the Arab world and Turkey, respectively, should begin pressing them to prepare to do so. Otherwise a dangerous, violent explosion could occur, as the current unsustainable status quo will inevitably unravel. The only question is when.The writer is adjunct professor of international relations at the Center for Global Affairs at NYU. He teaches international negotiation and Middle Eastern studies.