The Palestinians' success in joining UNESCO and Israel's immediate retaliation has two main casualties: the peace process and the Obama administration.
Monday's vote by the United Nations Educational Scientific and Cultural Organisation to grant full Palestinian membership despite U.S. and Israeli objections exposed how little leverage Washington has on either side. It forced the Obama administration to withhold $60 million from the agency.
The vote appears to have dramatically lengthened the odds of resuming peace talks, which collapsed more than a year ago despite the efforts of President Barack Obama.
And it triggered what some analysts see as an overreaction by Israel, which on Tuesday announced plans to speed up settlement building and to withhold, at least temporarily, customs revenues and other fees that it collects for the Palestinians.
The biggest loser, it seems, is the United States and its long-shot hope of coaxing both sides back into negotiations.
There are consequences in terms of the environment for getting these parties back to the table -- which is going in the wrong direction, State Department spokeswoman Victoria Nuland told reporters.
Another U.S. official said the White House already had little stomach for running the domestic and foreign political risk entailed in launching any new peace initiative, and the latest developments have made such a move even more doubtful.
It's not that it's totally hopeless but there's very little reason for any optimism in the near-term, the official said.
This official said the Obama administration was caught off guard by the strength of Israel's retaliation.
Daniel Levy, a former Israeli peace negotiator under Prime Minister Ehud Barak who is now at the New American Foundation think tank in Washington, said, The Palestinian strategy right now is hurting America more than it's hurting Israel.
UNAPPEALING CHOICES FOR U.S.
The United States and Israel fought an unsuccessful battle to prevent the Palestinians from formally applying to join the United Nations in September. Washington has said it will ultimately veto the application, which is working its way through the U.N. Security Council.
Both countries argue that the Palestinians can only achieve statehood through direct peace talks, and reject any moves through which U.N. agencies would unilaterally recognise a Palestinian state.
But the Palestinians have forged ahead, and at UNESCO scored their first real success with a lopsided vote that prompted Israel's speedy retaliation.
The Palestinian diplomatic moves, and Israel's reaction, create a series of unappealing choices for the White House before the 2012 U.S. presidential election in which it would prefer not to alienate Jewish voters, some of whom are already unhappy with Obama.
Showing its solidarity with Israel, Washington found itself in a minority of 14 voting against Palestinian membership in UNESCO, with 107 countries voting in favour and 52 -- including close allies such as Britain -- abstaining.
The Obama administration was forced by U.S. law to cut off funding for the U.N. cultural agency, a step the State Department has said is not in America's national interest and could lead to a dangerous cascade effect if other U.N. agencies follow suit.
Secretary of State Hillary Clinton told Reuters on October 11 she was arguing to lawmakers that the administration would need flexibility to maintain such funding, particularly if agencies such as the International Atomic Energy Agency or the World Health Organisation gave the Palestinians full membership.
The administration must now talk to members of Congress about funding UNESCO, a U.N. agency for which there is little love lost, especially among some Republicans lawmakers, in an era of tight budgets.
In an election year, supporting the U.N. over Israel is an overwhelming political loser, said Jon Alterman, director of the Middle East program at the Centre for Strategic and International Studies in Washington.
U.S. 'DEEPLY DISAPPOINTED' BY SETTLEMENT BUILDING
Alterman also said the Israeli response -- speeding up its construction of settlements, prompting the White House to say it was deeply disappointed -- distances Israel from the United States just when it needs U.S. support most to try to stop Palestinian efforts to gain membership in U.N. agencies.
The administration is also in the uncomfortable position of trying to persuade lawmakers to keep funding the Palestinian Authority -- notably for forces that maintain security in the West Bank -- despite lawmakers' threats to cut funds if the Palestinians sought U.N. membership as they did on September 23.
That same day, the so-called Quartet of Middle East mediators called for the Israelis and Palestinians to hold preparatory talks within a month and to make comprehensive proposals on territory and security within three months.
But the Quartet, which includes the European Union, Russia, the United Nations and the United States, has failed to get the parties to meet. And there seems to be little hope that it will meet its goal of a peace deal by the end of next year.
Some analysts faulted the Obama administration for not having a strategy to get the two sides back into talks and to prevent them from in effect thumbing their noses at the United States and directly flouting its wishes.
We're in a period now of uncoordinated escalatory unilateral moves by the Israelis and the Palestinians. It is the thing the Obama administration said they wanted to avoid but then had no strategy to actually avoid, said Brian Katulis of the Centre for American Progress.
(Additional reporting by Matt Spetalnick. Editing by Mohammad Zargham and Christopher Wilson)