In August, Palestinian Prime Minister Salaam Fayad announced a unilateral plan to establish a de facto Palestinian state in the West Bank and eastern Jerusalem following a two-year state-building process. Fayad's plan is the first serious Palestinian outline of a state-building effort since the PLO was founded in 1964 and replaces the traditional PLO position of armed struggle to "liberate Palestine." The Fayad plan represents a bold anti-Fatah posture and is seen to pose a direct challenge to Fatah and its leader, Mahmoud Abbas. Fayad enjoys only limited political backing and his political rivals, such as Tawfiq Tirawi, Abu Maher Gneim and Mahmud al-Alul, who were recently elected to the new Fatah Central Committee, have already blasted his plans. Israel supports "bottom up" Palestinian state-building. However, Israeli leaders have voiced legal and security-based concerns over Fayad's intention that the PLO would unilaterally declare Palestinian statehood in 2011 based on the June 4, 1967, lines. The one-sided establishment of a Palestinian state would contravene a key provision of the Oslo Interim Agreement, according to which: "Neither side shall initiate or take any step that will change the status of the West Bank and the Gaza Strip pending the outcome of the permanent-status agreement." Another direct challenge to Israel is that Fayad's blueprint calls for massive Palestinian development in Area "C" of the disputed West Bank, which is under Israeli civil and security control, and which directly challenges the delicate, agreed-upon framework of the 1993 Oslo Accords. Israel's requirement of "defensible borders" involves its continuing control in Area C, including the strategically vital Jordan Valley and the high ground surrounding Jerusalem and overlooking Israel's vulnerable cities along the Mediterranean coast. Hizbullah's 4,000 rocket attacks from the north in 2006 and Hamas's 10,000 rocket and mortar attacks from Gaza, culminating in the 2009 Gaza war, both underscore the rocket threat against those cities that could emerge from a Palestinian state in the West Bank if Israel were to withdraw to the pre-1967 lines. Western enthusiasm Fayad's 54-page plan to build Palestinian infrastructure and establish Western-style public institutions is the first of its kind since the signing of the 1993 Oslo Accords. His state-building vision has already elicited Western enthusiasm and financial and political support from the Obama administration and European countries. However, Western optimism may have underestimated the ominous political tensions which the plan has exacerbated among the fractured Palestinian leadership. Fayad, as an unelected prime minister of the Palestinian Authority, has provoked some in the Palestinian leadership by announcing his far-reaching program without first seeking approval from the PA Legislative Council or the PLO governing bodies, without whose support such an initiative cannot be implemented. A unilateral declaration of Palestinian statehood would be unacceptable to Israel, as it would contravene the internationally recognized principles of a negotiated settlement and secure and recognized boundaries - defensible borders - that were firmly established in UN Security Council Resolution 242 following the Six Day War. This resolution, passed in November 1967, has governed all ArabIsraeli peace negotiations since then, including the Oslo process, the road map and Annapolis. Israel would welcome the opportunity to share its vast experience in state-building to help Fayad achieve his "bottom up" statebuilding vision within a strong Israeli-Palestinian partnership. However, any unilateral Palestinian declaration of statehood would preclude Israel's vital security requirements and its internationally-sanctioned legal rights, and could end up derailing the peace process and lead to armed conflict between PA forces and Israel. The Fayad plan Fayad's plan replaces the traditional PLO position of advocating a "struggle of every means" including armed struggle to "liberate Palestine," that was reaffirmed at the Sixth Fatah Congress in Bethlehem in August. His stated intention is to dedicate the next 24 months to building physical infrastructure, public institutions, public services and tax incentives for foreign investors. These state-building assets would anchor a viable de facto state throughout the West Bank, including areas that, in line with signed agreements between Israel and the PLO at Oslo, fall under Israeli control, such as the hills that overlook Jerusalem and Israel's coastal cities to the west, as well as the Jordan Valley. Fayad's intention is to create facts on the ground that will garner major international support and lead to pressure to transform recognition of a de facto Palestinian state in 2011 into a de jure state in the event that the Palestinian Authority and Israel fail to reach a negotiated solution. "If occupation has not ended by then  and the nations of the world from China to Chile to Africa and to Australia are looking at us, they will say that the Palestinian people have a ready state on the ground. The only problem is the Israeli occupation [the Israeli communities and security presence] that should end," Fayad said. Sidelining Fatah Despite the plan's explicit "full commitment to the Palestine Liberation Organization program," the Fayad plan represents a bold anti-Fatah posture. Its opening sentences omit any mention of Fatah, despite the group's role as the leading Palestinian political movement that has defined the Palestinian liberation narrative for nearly half a century. His Western approach in language, substance and style represents a sharp break from both past PA governments and Abbas's Fatah movement. Fayad's glaring omission of a mention of Fatah, and the plan's commitment to political struggle based on "peaceful and popular movements," together with "building a government based on the principles of justice and the rule of law, equality and tolerance, safeguarded by a clear separation of powers of the executive, the legislature and judiciary," is language uniquely befitting the US-trained Palestinian economist, who told Newsweek that former US Treasury secretary Alexander Hamilton, the New York federalist, was a role model. Fayad has a staunch reputation in the West as a "technocrat and pragmatist." Fayad's unilateral Palestinian state program has already earned the broad backing of the UN, the Quartet and European leaders, as well as the Obama administration. In fact, on July 12, Javier Solana, the European Union's top diplomat, reportedly called on the UN Security Council to recognize a Palestinian state even without a final-status agreement between Israel and the Palestinians. He said the UN "would accept the Palestinian state as a full member of the UN, and set a calendar for implementation." While the US administration has not officially announced explicit support for Fayad's state project, President Barack Obama has also envisioned a two-year path to Mideast peace. There are other indications of support as well. Shortly after the plan's publication in August, the Obama administration announced a $20m. grant to back the effort. A few weeks earlier, Congress approved a $200m. deposit into the PA treasury, which falls under Fayad's direct control. Washington also committed $109m. in 2009 to finance an expanded, US-backed training program for the PA security forces that since 2005 have been under Fayad's control, under the close supervision of US Lt.-Gen. Keith Dayton. Palestinian opposition Fatah has decided to give the plan a chance due to the prospect of Fayad's implementing Palestinian state projects on an unprecedented scale. At the same time, Fayad's agenda has triggered tensions in Fatah and the PLO and has drawn sharp criticism from the Arab media for coopting the power and legitimacy of official PLO bodies. Fayad's approach contradicts the recent Fatah Congress's reaffirmation of a one-state solution in the event that negotiations over a twostate solution fail. Fatah's rejection of Fayad was manifested in the rejection of his candidacy to the PLO executive committee, which, had he been elected, would have empowered him to declare a state as part of the PLO political hierarchy. Fayad will also face a major challenge in financing his state-building program. International donor countries have not yet honored the billions of dollars in pledges made at the 2007 Paris donors conference, as well as the nearly $5 billion pledged at the 2009 Gaza war donors conference in Cairo. One potentially prohibitive roadblock to Fayad's statehood plan is that it calls for a reconnection of the Hamas-controlled Gaza Strip to the Fatah-ruled West Bank. This would imply that Hamas would have to accede to holding elections in January 2010, which it currently opposes, relinquish its de facto rule over Gaza, and once again accept living under Fatah control. Israel's legal and security concerns Aside from formidable challenges on the Palestinian front, Fayad's plan creates serious legal and security concerns for Israel. Alan Baker, former legal adviser to the Foreign Ministry and one of the legal engineers of the Oslo Accords, warned that Fayad's onesided establishment of a Palestinian state contravenes a key provision of Oslo . Another direct challenge to Israel is that Fayad's "blueprint" calls for massive Palestinian development in Area C. Palestinian plans include building an airport in the Jordan Valley, taking control of Atarot airport in Jerusalem, establishing new rail links to neighboring states, and water installation projects near Tulkarm and Kalkilya, close to the pre-1967 Green Line. Israeli security echelons firmly oppose Palestinian airport development plans near Jerusalem and in the Jordan Valley. Furthermore, Fayad has broader designs on Area C. He told the Arab daily Asharq Alawsat in a September 1 interview: "Many think that Area C has become disputed territories rather than occupied territories in the public consciousness. We assert that these are PNA [Palestinian National Authority] territories where the state will be established." In a September 17 interview, Prime Minister Binyamin Netanyahu reiterated his rejection of the Palestinian demand that the pre-1967 lines will become Israel's eastern border, which is a central part of Fayad's plan. Netanyahu told the Yisrael Hayom daily: "There are those who prophesied that the 1967 lines would be [Israel's eastern] border, but these are indefensible, something that is unacceptable to me. Israel needs defensible borders and also the ongoing ability to defend itself." Risks and dangers Fayad's two-year, unilateral, state-building plan signals a positive shift away from the politics of armed struggle that has characterized the Fatah leadership to date. The current policy of the State of Israel advocates bottom-up statebuilding as well as security, political and educational reform and economic peace as necessary stages to achieve a demilitarized Palestinian state. In this sense, Fayad has demonstrated political boldness in unilaterally transforming the failed Fatah policies of the past and in standing firm against Hamas. However, the risks and dangers of such a plan, in view of the growing tensions and competition for power in the Palestinian arena, likely outweigh the plan's potential to unify Palestinian ranks and end the conflict with Israel. Furthermore, the Fayad plan would unilaterally transform the diplomatic paradigm between the PA and Israel from a legally sanctioned, negotiated process to a unilateral Palestinian initiative that has far-reaching and even troubling legal, political, and security implications for Israel and, by extension, for the Palestinians and other regional actors. A unilateral declaration of Palestinian statehood would also free Israel from the restrictions and obligations it accepted under the Oslo agreements, with all that implies, and would further complicate the peace process. Fayad's strategy to enlist US and international support for his unilateral steps to pressure Israel to withdraw to the pre-1967 lines could very well backfire. Far from building the foundations of a Palestinian state, a unilaterally declared state that claims the pre-1967 lines as its borders could end up thrusting Israel, the PA and other regional actors into a storm of instability, and possibly armed conflict. Dan Diker and Pinhas Inbari are senior foreign policy analysts at the Jerusalem Center for Public Affairs. This piece is an edited version of an article written for the JCPA's Institute for Contemporary Affairs. Reprinted by permission.