A FEW DAYS AGO, WHILE IN the offices of Palestinian Authority (PA) Prime Minister Salam Fayyad, I heard about a complaint from the small village of Beni Hassan in Samaria in the northern West Bank.Fayyad had stopped by the village during one of his routine tours in the West Bank. The residents had requested his government pave the narrow road leading into the village; every winter this small road became a sludge of mud. Fayyad had agreed to the request and the road had been paved. But then it became apparent that a small portion of the short road ran through Area C – the 60 percent of the West Bank controlled and administered solely by Israel – and thus required a special permit from Israel. This arrangement of designated areas (A, B, and C) dates back to the Oslo Accords of the mid 1990s.In the case of the road leading into Beni Hassan, no permit from Israel had been sought and none had been granted. So the Palestinians were officially requested by Israel to unpave this short strip of newly paved road and “restore it to its former status.” The Palestinians didn’t comply so Israel had officially informed them that if they didn’t do it, then Israel would.This is not a particularly important incident and chances are the issue will be resolved to the satisfaction of Israel and the Palestinians alike. In the West Bank, incidents of this kind, which involve projects carried out by the PA in Area C, occur frequently.Construction of the new Palestinian city, Rawabi (“the Hills”), between Nablus and Ramallah – a Palestinian initiated project – has been delayed because its access road passes through Area C. A joint Palestinian-Japanese venture to build an industrial park east of Jericho has run into the same problem, as have several other projects, including the municipal stadium in El Bireh, outside Ramallah, a small portion of which was constructed in Area C, and the planned industrial site in Tarkomiya, west of Hebron.Some day in the future, if an arrangement defining permanent borders between the Palestinian Authority, or state, and Israel is ever reached, solutions will be found to such problems. But in the meantime, realities on the ground lead to the same longstanding arguments relating to control over the territories that Israeli society and politics have had to deal with for years.I am referring specifically to the disagreements between Yigal Allon, deputy prime minister, and Moshe Dayan, defense minister during the Six Day War, over the way to handle the lands that Israel had captured in that war. Allon, who had been commander of the Palmah, the pre-state strike force and was a demigod to the young men of the “1948 generation,” was the first to formulate a political policy for the future of the territories Israel had just taken over in 1967. We must remember that the 1967 conquest of the West Bank and Gaza caught most Israelis – and certainly, most Israeli leaders – completely by surprise. Israeli prime minister at the time, Levi Eshkol, cynically remarked that back in 1948, Israel had received a dowry, (a reference to the territories where Arabs had lived) without the bride (a reference to the Arabs who had lived in Jaffa, Lod, Ramle, Haifa and all the other towns and cities). But now, rued Eshkol, in the Six Day War we received not only another dowry – the West Bank and Gaza – but this time the bride – the thousands of Palestinians who remained in the territories – came along, too.SO, WHAT WAS TO BE DONE? Allon proposed a plan that most of the government, which was then dominated by the Labor Party, found acceptable. However, even though the idea was debated endlessly for at least a decade until 1977, and even though two books were published about the proposal, the “Allon Plan” was never formally embraced as official policy. At its center, this plan called for reaching a territorial compromise with King Hussein of Jordan, according to which Jordan would be given back control over the highlands of the West Bank, from Jenin to Hebron, while the Jordan Valley would be turned over to full Israeli sovereignty.To connect eastern Jordan to the Palestinians in the West Bank highlands, Jordan was to receive control over a corridor that would lead from Jericho to East Jerusalem, where Jordan would have a presence on the Temple Mount. In addition, Jordan would receive another corridor that would connect the West Bank to Gaza.The Allon Plan was intended to bring Israel several clear advantages. First, Israel would not have to rule over the millions of Palestinians living in the West Bank and Gaza, and second, Israel would have a defensible border along the Jordan River. The fact that then, and now, the Jordan Valley is quite empty and has very few residents, was critical.Against the backdrop of this plan, successive Israeli governments established settlements in the Jordan Valley in the first decade following the Six Day War. This was a clear signal, following the parameters of the Allon Plan, that Israel intended to annex the Jordan Valley.Allon met secretly with Hussein several times to discuss the proposition. Other Israeli leaders also met with the Jordanian monarch to confer on the plan. Hussein rejected the plan outright.In contrast to Allon’s idea of territorial compromise, Dayan put forth another plan, referred to as “functional compromise.” Like Allon, Dayan understood that it would be impossible for the State of Israel to maintain control over the Palestinians living in the West Bank and Gaza. Dayan thought the land of Israel is a single geographical entity in which all of its residents, Jews and Palestinians, should be permitted to move about freely. However, the Palestinians would not have Israeli citizenship; rather, they would have self-rule. Several times, I heard Dayan proclaim, “My father didn’t make aliya to [Kibbutz] Degania and [Moshav] Nahalal so that I could be in charge of the education department of Nablus and the orange groves of Gaza.”In other words, Dayan’s idea of “functional compromise” meant that Israel would retain control over specific vital functions – territory and security – while the Palestinians would have control over their own affairs in spheres such as economics, health and education. The Palestinians would be able to exercise their political rights, Dayan suggested, in east Jordan and they would be allowed to vote and run for office in Amman. It was against this background that Dayan joined the first Likud government, led by Menachem Begin, in 1977, and it was against this background that Begin traveled to US president Jimmy Carter and presented his ideas for Palestinian autonomy. Subsequently, the autonomy plan became a part of the peace agreement between Israel and Egypt reached by Carter, Begin and Sadat in 1979.HOW IS ALL THIS RELEVANT today? Very simple. What we see happening is the implementation, almost to the letter, of Dayan’s “functional compromise.”The only difference is that the Palestinians exercise their political rights – at least, in part – through their own government and governmental institutions. And they do vote for a parliament and a president – but in Ramallah, not in Jordan.Today, according to the “functional compromise,” critical functions in the West Bank (and to a small extent, in Gaza as well) remain in Israel’s hands. In reality, Israel controls all of the border crossings, by land, sea or air. Israel has full control over all goods and people who enter or leave the West Bank.In Gaza, Israeli control is less hermetic because of the Egyptian crossing at Rafah and the extensive network of tunnels along the Egyptian border. Israel registers every individual in the territories (that is, Israel fills the central function of an Interior Ministry), and the same goes for the Palestinian economy and commerce, which are also largely under Israeli supervision.Israel controls most of the territory of the West Bank (Area C comprises about 60 percent of the West Bank land area) as well as water resources. The Palestinians are not permitted to drill a well without coordinating with and receiving a permit from a joint Israeli-Palestinian committee. The same goes for quarries and national parks.Security in the West Bank is ostensibly in the hands of Palestinian security forces, which operate under American supervision and in coordination with Israel. In practice, though, the Israeli army and security forces operate in all parts of the West Bank with virtually no interference. Several times I have witnessed, to my surprise, Israeli patrols in the middle of Hebron or Ramallah. And almost daily we hear reports about IDF raids and arrests in Palestinian-administered areas.The Palestinians have received all the functions connected to provision of services. They deal with their educational and health systems and with all municipal services. They prepare the plans for the areas under the PA, issue building permits and are responsible for everything that relates to transportation, the public order and events involving the police. The Palestinians also manage their own social services, environmental affairs and economic issues, such as commerce, taxation and banking (all according to agreements with Israel).Most Palestinians regard “functional compromise” as the perpetuation of the occupation and a national humiliation. From time to time, Palestinian voices can be heard demanding an end to compliance with this compromise. “Let’s simply dismantle the Palestinian Authority – and hand the keys over to Israel,” Prof. Ali Al-Jerbawi of Birzeit University (near Ramallah) once proposed. In the meantime, Fayyad appointed the professor Minister of Planning, so Al-Jerbawi no longer proffers this suggestion.When I recently asked Ghassan Al- Khatib, minister of Information in the Fayyad government, why the Palestinians aren’t more serious about dismantling the PA and handing the keys over to Israel, he responded, “It’s a naïve suggestion. Sure we can hand all the keys over to you – but you, after all, won’t take them.”It is fairly clear to the Palestinians that the current form of the functional compromise cannot continue much longer. Which means that the outcome of the current peace talks are crucially important for the future of the PA. If the talks fail, as president Bill Clinton’s efforts with Yasser Arafat and Ehud Barak at Camp David failed in 2000, we could be dragged into a new cycle of horrendous violence, as occurred in what has come to be known as the al-Aqsa Intifada.“That’s something the Palestinians simply cannot allow themselves to let happen,” says Al-Khatib.In all likelihood, we, the Israelis, can’t allow ourselves to let it happen, either.