TEL AVIV, Israel.

Israel's summer war with Hizballah changed the national agenda and altered the regional balance of power, drawing the U.S. closer to confrontation with Iran.

For Israelis, it was a mega-crisis culminating a year of upheavals, during which their country went through the Gaza pullout, a traumatic leadership change following the untimely departure of Ariel Sharon, and the collapse of a shaky ceasefire with Hamas, the terrorist group that surprisingly won the Palestinian election.

Both Hizballah and Israel came out of their clash wounded and beaten, unconvincingly boasting "victory" over each other. Both were surprised by their opponent's actions. Israel had not anticipated Hizballah's attack across the Lebanese-Israeli border on July 12, resulting in the abduction of two IDF servicemen and the killing of eight others. Hassan Nasrallah, Hizballah's leader, was dumbstruck by the severe response of Ehud Olmert, Israel's newly elected prime minister. After five weeks of heavy exchange of fire and a massive displacement of civilians, the belligerents accepted a un-sanctioned ceasefire, brokered by the United States and France.

Olmert's government preserved public support through most of the war, but the failure of Israel's glorious military to defeat a small Lebanese militia has eroded public trust in political leadership and military command. The IDF displayed embarrassing incompetence in areas like intelligence, logistics, training and command. The rookie civilian team, headed by Olmert and defense minister, Amir Peretz, rushed to war and then managed it hesitantly, missing an opportunity to halt after several days and then using too little force to achieve a decisive outcome. Despite suffering massive blows, Hizballah retained its command and control structure, and kept firing a daily barrage of 100-200 Syrian- and Iranian-supplied rockets into Israel. "Restoring deterrence" had been one of Olmert's war goals, with mixed results. Israel's neighbors witnessed its unmatched air power and strong American backing, but the civilian casualties and infrastructure destruction in Lebanon turned into a PR disaster and inflamed anti-Israeli and anti-American feelings in the "Arab street."

Still hiding, fearing Israeli assassination, Nasrallah has to explain why he risked Lebanon's destruction for the abduction of Israeli soldiers. Moreover, under ceasefire terms, the Lebanese government of Fouad Siniora has to deploy its army along the Israeli border, reasserting its sovereignty in its southern region after 31 years. This had been a long-standing, though unfulfilled, Israeli demand. Jerusalem wanted Beirut to be responsible for its territory, rather than shrug off its duties and allow Hizballah to turn the border zone, following Israel's May 2000 withdrawal, into a fortified launching pad for Katyushas. Siniora's forces will be reinforced with a un contingent, composed mainly of Europeans. The deal forced reluctant governments in Paris, Berlin and Rome to stand by their public cries for a ceasefire and help facilitate it.

The war has thrown Israel into the familiar state of political instability. Olmert, who pledged to unilaterally withdraw Israeli settlements from 90% of the West Bank, had to abandon his erstwhile agenda and focus instead on job survival. Unilateralism, Israel's preferred strategy vis-à-vis its neighbors since 2000, lost its appeal overnight. South Lebanon and Gaza, which Israel evacuated in recent years, turned into breeding grounds for cross-border terrorism. With this backdrop, a deep withdrawal in the West Bank, with its superior terrain and proximity to Tel Aviv and Jerusalem, appears too risky. Instead, Israel will now turn its energy to rebuilding the devastated north and revitalizing its army.

The demise of unilateralism has intensified the old debate over peace versus territory. Israel's right wing argues that with neighbors like Hamas and Hizballah, whose strings are pulled in Damascus and Tehran, giving up territories and settlements will be seen as sign of weakness that will only prompt another war. Therefore, Israel must preserve the status quo to "show strength." The left views the war as an opportunity to revive peace talks with Syria and the Palestinians. Truly, the fighting proved the limits of force and the need for dialogue, but weak governments like Olmert's are unable to take the controversial decisions necessary for peacemaking.

Regionally, events in both Gaza and Lebanon have shown that the electoral ascendancy of militant Islamic groups like Hamas and Hizballah to official government posts has failed to moderate them or to deter them from developing and using their arsenals. This has wide-reaching consequences for the American-led Arab democracy drive.

Syria came out as the major winner. The al-Asad regime rose back from its previous pariah status to be recognized as an indispensable regional broker. Its patronage to Hamas leaders and arms supplies to Hizballah, a constant source of trouble with Washington, paid off handsomely: al-Asad's proxies inflicted a heavy toll on Israel and prompted important voices in the American foreign policy establishment to advocate engagement with Damascus and revitalizing dormant Israeli-Syrian peace talks over the Golan. Al-Asad was reinvented as an essential dealmaker, rather than a hopeless troublemaker, even as he maintained his alliance with Tehran.

The Palestinians, on the other hand, have been the great losers. Global attention turned away from them to Lebanon, giving Israel a freer hand to crush the Gaza terrorist groups, whose June 25 cross-border abduction of an IDF soldier sparked the escalation. And despite their losses, and the heavy pressure on the Hamas government, the Palestinians have been unable to sort out their political differences and create political unity, which could lead into meaningful truce negotiations with Olmert.

These developments, important as they are, pale in comparison with the main outcome of the conflict: enhancing the volatility of Iran's nuclear and regional hegemonic ambitions, and drawing the United States closer to confronting the Islamic Republic. Regardless of Tehran's actual involvement in instigating the Hizballah attack on Israel-even if only through the tacit nod-the war made clear that Iran had built a forward missile base in Lebanon to deter Israel through its financial and military sponsorship of Nasrallah. While fighting went on across the Israeli-Lebanese border, Iran's nuclear standoff with Washington and its allies heated up; following the August 14 ceasefire, it became the most pressing global problem.

The summer war erupted and escalated due to the gross miscalculations of its protagonists, Nasrallah and Olmert, resulting in the weakening of both. But in the broader perspective, it shifted Israeli and international focus away from efforts to quell the Israeli-Palestinian conflict, in favor of confronting the "quartet of extremism": Iran, Syria, Hizballah and Hamas.

Aluf Benn is the diplomatic editor of the Israeli daily Ha'aretz and a contributing editor of The National Interest.