Much has been made of President Obama's recent tax-cut backtrack, but the most disheartening White House move actually played out far away from Capitol Hill. Buried within the news cycle was the announcement that the United States would no longer press Israel to stop West Bank settlement construction as a precondition for continued peace-process negotiations with the Palestinian Authority. 

This disappointment is yet another about-face for an administration that — both home and abroad — is displaying a worrying creep toward official two-facedness. Ushered into office amid promises of an Arab-world rapprochement, Obama repeatedly insisted that ending settlement expansion would be a cornerstone of his Israeli-Palestinian policy. Yet barely 18 months after his monumental Cairo reconciliation speech, President Obama has caved in to Israeli Prime Minister Benjamin Netanyahu's hard-line hardheadedness.

Indeed, despite more than 30 years of U.S. settlement policy on his side and signs that previous settlement "freezes" helped reboot peace talks, Obama appears to be abandoning the Palestinian cause while prostrating himself before a rude, recalcitrant — and increasingly rogue — Netanyahu government. More worrisome, Obama does so at the very moment Palestinian President Mahmoud Abbas needs him most.

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Equally frustrated by U.S. inaction and Israeli intransigence, Abbas is sending clear signals that he may take drastic action — and fast!

Scenario A sees Abbas simply resigning — walking away from a Palestinian Authority that could potentially collapse from the resulting power vacuum. Far more impactful would be a move by Abbas to unilaterally declare Palestinian independence — an option increasingly popular in many European and Latin American nations.

With no formal borders or autonomous army, or even its own currency, the P.A. clearly lacks the institutions needed to sustain a viable independent nation. Add in U.S. commitments to veto any U.N. statehood vote, and Palestinian sovereignty stabs — at least for now — are far more symbolic than actual attempts at bona fide independence. Nonetheless, the message is clear: Boxed in and beaten down, Abbas — along with many Arab moderates — is joining American liberals in their disillusionment with the Obama White House.

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"Much as he did with the tax cut, Obama created incredible expectations [among] the Palestinians and within the Arab world," says pollster James Zogby, president of the Arab-American Institute and a member of the executive committee of the Democratic National Committee. "He's now doused those expectations, and there will be consequences. Arabs are beginning to feel like abused children, slapped around with nowhere to turn."

The most confounding aspect of Obama's settlement step-back is its sheer emptiness. While the tax compromise at least ensured continued unemployment benefits, the settlement reversal earns Obama — and the peace process — little in return. Moreover, it comes at a possible last-chance moment for any real progress on the settlement stalemate. White House initiatives — like a two-state solution and settlement freezes — are certain to be obstructed in the upcoming Republican-led Congress.

For the moment, however, the settlement issue appears off the table — much as right-wingers in both Israel and the U.S. intended. "Israel has become a partisan issue in a way that it never was before, so attacking Obama's [peace process] policies has now become fair game," observes Hadar Susskind, vice president of policy at J Street, the liberal pro-Israel advocacy group.

Zogby's view is far less diplomatic. "AIPAC today operates from the right," he says. "Hardline Republicans and hardline Likudniks were out to get Obama from the beginning. They sought to defang him, to back him into a corner; they've played this thing to their advantage since day one."

The question now is what's next. Both Secretary of State Hillary Clinton and the White House continue to insist that Obama does not support settlement expansion. Nonetheless, Clinton made clear that she expects the peace process to continue with a new "focus on core issues" — such as borders, security, refugees and the status of Jerusalem. All have proved nearly impossible to resolve in the past, suggesting that the White House itself is downgrading the peace process as a core policy priority. Obama's settlement reversal, it seems, may very well be permanent.

Unlike the White House tax concessions, Obama's fickle Israel policy will quickly be forgotten by major media. Yet for both America's global prestige and overall foreign policy, the damage could be just as severe. Zogby suggests that moderate Arab leaders may now resist cracking down on radical elements within their own nations, "worried that America no longer has their back." Meanwhile, in Israel, a surprisingly strong Netanyahu is likely to operate more aggressively, as if he no longer must account to his U.S. patrons. Obama's settlement volte-face leaves him little reason to think otherwise.

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"Netanyahu is heading an unusually stable government, one where he's been able to position himself as the 'leftist' within his coalition," Susskind says. It's all part of the prime minister's skill as a "master manipulator," according to Zogby — one that President Bill Clinton, he adds, "dealt with by simply not dealing with him." Almost two decades later, it looks as if history will repeat itself.

David Kaufman is a New York-based writer who contributes regularly to the Wall Street Journal, the Financial Times, Time and Monocle.