Following this week's Annapolis meeting, Israel and the Palestinians will launch negotiations toward a permanent settlement. Indeed, reaching "permanent status" (i.e., end of Israeli occupation, establishment of a Palestinian state and resolution of outstanding issues) is an essential Israeli interest. Threats to its existence as a Jewish and democratic state, religious extremism, and delegitimization of the two-state solution are intensifying. There is an understanding that Palestinian Authority leaders Mahmoud Abbas and Salaam Fayad, now separated from Hamas, may be the best partners Israel will ever get. Nevertheless, serious questions remain about the efficacy of trying to reach permanent status through one comprehensive agreement. Lack of Legitimacy and Capacity Reaching a comprehensive settlement is uncertain in the current political context for three main reasons related to Israeli and Palestinian legitimacy and capacity. First, there is a wide gap between Israeli and Palestinian positions regarding the core issues (borders, Jerusalem, refugees, security, etc.). Despite the common perception that the contours of a future settlement are closely expressed by the Clinton ideas of Camp David 2000, in practice, full agreement exists only on a small number of clauses related to permanent status. Second, although he may have the will to reach an agreement, Abbas lacks legitimacy and capacity to both ratify and implement it. While officially the PLO is the sole legitimate representative of the Palestinian people, the fact that Hamas is not included (as agreed upon in the Mecca agreement in February) has eroded its legitimacy. Additionally, Abbas seeks a national referendum in Gaza and among Palestinians in other countries to legitimately ratify any agreement with Israel, but the chances of successful implementation in light of Hamas's control over Gaza are slim. Finally, resistance groups have the capacity to thwart the political process through strategic terror. Third, in light of the current system of government in Israel, any meaningful agreement with the Palestinians is likely to lead to a domestic political crisis and even to the collapse of the coalition. This threatens Israel's own capacity to conclude a comprehensive agreement. Vulnerability of the Political Process Both the Oslo process and the road map call for one comprehensive agreement. Hence, each suffers from the legitimacy and capacity challenges described above. In addition, the "package approach" of Oslo and the road map's third phase creates an all-or-nothing dynamic: Without agreement on all issues, there can be no agreement on any of them. For example, without agreement on the status of holy places, there will be no security or economic agreements. On the other hand, the second phase of the road map - which calls for a Palestinian state with provisional borders (PSPB) before a comprehensive agreement - detaches the all-or-nothing dynamic of negotiations on core issues from the creation of a Palestinian state. Thus it erodes the one-state threat, regardless of whether agreement on all of the core issues can be reached. However, this strategy will be vulnerable to a deadlock as long as the Palestinians reject the idea of a PSPB. Facilitating Statehood Israel is liable to encounter significant obstacles in reaching permanent status if the framework is based on achieving a single comprehensive agreement. The failure of such frameworks risks frustration with and rejection of the two-state solution by Palestinians and members of the international community. The polarization of Israeli-Palestinian negotiations - either a package deal or nothing - is dangerous. However, there may be an alternative. If Israel begins preparing the groundwork for a de-facto Palestinian state today, it is more likely that the sides can reach a desirable permanent status. First, if a single comprehensive agreement cannot be concluded, Israel and the de-facto Palestinian state can more feasibly pursue separate bilateral agreements for each of the core issues. For example, agreement on permanent borders alone would separate resolution of the territorial issue from resolution of the refugee issue. Second, a de-facto state would give Israel more leverage in the future to unilaterally recognize a Palestinian state if necessary. Pursuit of this logic is feasible within the framework of current negotiations as confidence-building measures, and perhaps even preferable in light of the split between Gaza and the West Bank. Transferring Israel's current powers to the PA, such as tax and revenue collection authority, would enable Israel to disengage and contribute to Palestinian state-building. John Davis and Yael Guez are analysts at the Reut Institute.