SUMMER 2005 marked a double victory for Israel's prime minister, Ariel Sharon. His disengagement plan to remove the Jewish settlements from Gaza and the northern West Bank was carried out swiftly and smoothly, disproving scary predictions of widespread violence and disobedience. Israel's military and police forces maintained their integrity, and not a single shot was fired during the forced evacuation of inhabitants from 25 settlements. Israel has shown a skeptical world that it can successfully confront its right-wing settler movement when the national interest requires it.

Throughout the two-year disengagement process, Sharon has kept the majority of the public, the military and the government bureaucracy rallied behind him to overcome considerable political hurdles. His settler opponents filled the country with their orange ribbons but failed to win active support beyond their core group. Their failure to reach out to the mainstream doomed their protest. By mid-September, the last Israeli soldier had left Gaza.

Shortly afterwards, Sharon beat his challenger for prime minister, Binyamin Netanyahu, who resigned as treasury minister and tried to ride the anti-Sharon wave in the ruling Likud Party. The Likud central committee voted down Netanyahu's bid for an early leadership contest. Using his characteristic mixture of threats and temptations, Sharon won by a small margin.

Alas, his narrow victory could not last long. On November 9, trade union boss Amir Peretz won the Labor Party primary. He pledged to move the peace process toward final-status deals with the Palestinians and Syria and to reconstruct the welfare state, after over a decade in which Israel adopted free market economic policies. The "Peretz effect" energized the political system, and within two weeks Israel's political map was redrawn. Sharon had to call an early election for March, more than seven weeks ahead of schedule, and following some hesitation he decided to leave Likud--the ruling party he had initiated upon his retirement from the army in 1973--and run for election with a new political group. Sharon felt he had lost control over the Likud Party machine, which opposed further territorial concessions. True to form, he gambled on a high-risk move, campaigning without a supportive organization. Sharon cites his long experience--"sixty years in the front"--as the reason to give him a third term in office. Thus he turned the coming election into a referendum on his leadership and policies. It will be an unprecedented tripartite race between his party, the forsaken Likud and Peretz's Labor.

Sharon's summertime successes--combined with a noticeable reduction in terror attacks and a booming economy--have positioned him as the unshakable leader of Israel. Repeated polls indicate that the Israeli public accepts Sharon's assertion that there is currently no one else capable of reining in the country and dealing with its challenges. Internationally, world leaders pardoned Sharon for his brutal past, praising his "courageous" Gaza withdrawal. Op-eds, magazine articles and a new biography have tried to decipher his leadership and management secrets, which seem to have succeeded despite the most extraordinary array of opposing forces.

DEFYING COMMON political wisdom, following the settlement evacuation he refrained from turning right to compensate the Likud support base. Rather, he kept his centrist course as his new party's platform. Polls indicated that a Sharon party would be the voters' favorite, but Israeli elections can be surprising--especially given the new composition of forces.

True to form, Sharon remained ambiguous about his next move. He hinted at a deeper West Bank withdrawal, vaguely promising "a giant step for peace" next year, and an effort to "finalize Israel's borders", while saying that any further move on the settlements will occur only in "the final stage" of negotiations with the Palestinians. This duality serves his domestic survival interests: It appeals to the center Left, which supports further settlement evacuation, and caters to the center Right, which wants to slow the process. Both political extremes remain opposed to the prime minister but currently lack public support to present a credible alternative.

Recent events have also improved Israel's international position. As the five-year Palestinian intifada faded out, the Israeli-Palestinian conflict lost its prominence in global affairs. America is busy with Iraq, rising oil prices, hurricanes and judicial appointments. President George W. Bush's pledge to oversee the creation of an independent Palestine during his second term appears as distant as ever. Sharon's disengagement fits perfectly into Bush's Middle East policy, supplying Washington with a much-needed achievement in the troubled region. Europe's leaders, traditionally the mainstay of support for the Palestinian cause, are busy with political troubles at home. Mahmoud Abbas, the new Palestinian leader, lacks Yasir Arafat's charisma and global standing. So, at least temporarily, Israel is spared the pressure to renew the peace process or evacuate more West Bank settlements.

Indeed, the Palestinian Authority (PA) appears to be the losing side in Sharon's Gaza gambit. Israel's withdrawal could be seen as a hard-won Palestinian victory over the decades-long occupation. Paradoxically, however, it only accelerated the disintegration of PA rule. In "liberated" Gaza, chaos, assassinations and kidnapping became the norm, rather than law and order. When Hamas, the Islamic militant group, exchanged fire with Israeli forces across the new Gaza border, the PA stood aside. Following years of successfully putting the blame for their failures on Israel's occupation and settlements, the Palestinians found themselves tested on their ability to rule. In the eyes of Bush and other world leaders, Gaza became a nation-building test case. Alas, the Palestinians have yet to get their act together.

Abbas enjoys American backing, and there is no talk of replacing him or of changing the PA structure. Sharon, however, treats his Palestinian neighbor with suspicion. There is no partnership or even serious dialogue between them, beyond discussing a long, permanent list of Palestinian requests, mostly rejected by Israel except for token gestures aimed at pleasing the Americans. Sharon and other Israeli officials avoided praising Abbas and the PA for their cooperation during the Gaza evacuation, when the Palestinians kept quiet. Instead, the Israelis criticized Abbas for being "soft on terrorism" and threatened to undermine the integration of Hamas into the Palestinian political system--the heart of Abbas's policy of Palestinian internal unity. For Israel, Hamas is an unrelenting enemy that should not play any part in the coming legislative election unless its military wing is disarmed. Given the slim chances for such a move, Israeli officials predict a postponement of the Palestinian vote, currently scheduled for late January.

Against the backdrop of Palestinian weakness and American indifference, Israeli intentions and actions will probably determine the direction of the troubled Israeli-Palestinian agenda in the coming year. Where is Sharon heading? How far will he go? Publicly, Sharon is committed to the internationally backed "roadmap" that envisions the creation, in three stages, of a Palestinian state alongside Israel. Since its launch in April 2003, the roadmap has failed to mature. It never got past its first stage, which demands a Palestinian crackdown on terror. Thus, as long as the PA does not confront Hamas and its ilk, the roadmap supplies Sharon with a perfect shield--sanctioned by Washington and Europe--against further territorial concessions or a quick move toward a final-status deal, which is Abbas's preference.

"The prime minister would be crazy to depart from the roadmap, even if deep inside he believes that nothing will come out of it", a Sharon aide told me recently, explaining, "the end of the roadmap will be the beginning of the imposed process." In other words, paying lip service to Palestinian statehood enables Sharon to call the shots in the West Bank, relatively free from external pressure.

In practice, this means achieving two goals: completion of Israel's security barrier and ongoing construction of housing units in the main "settlement blocks", mostly around Jerusalem.

The fence is a perfect example of Sharon's ambiguity. He originally opposed the idea, then adopted it under public pressure at the height of the Palestinian suicide bombings in 2002--but then maintained that it was merely a temporary counter-terrorism measure and not a border. Aware of international criticism of its route, which is well beyond the pre-1967 Green Line, Sharon has brought the project forward for cabinet approval in stages, usually grabbing the opportunity immediately after bloody terrorist attacks, when the Americans cannot be overly critical. Under international pressure--peaking with a negative decision of the International Court of Justice in July 2004--Israel moved the barrier route closer to the Green Line. In the process, the public and politicians alike have come to recognize the barrier, with its barbed wire, concrete walls and crossing points, as constituting a de facto future border, which would leave about a tenth of West Bank territory in Israeli hands. Sharon, however, has never subscribed publicly to this view, instead preparing the public for a further withdrawal.

The fence is now nearing its most contentious stages, within Jerusalem and around the three settlement blocks that Israel wants to annex: Ma'ale Adumim (the largest West Bank settlement), Ariel and Gush Etzion. In recent public appearances, Sharon vowed to integrate the blocks into Israel, along with East Jerusalem, the Jordan rift valley, the Jewish parts of Hebron and unspecified "security zones."