CHRIS FISHER, EDP Political Editor The search for the diplomatic holy grail of peace in the Middle East has suffered another big set-back. Political editor Chris Fisher considers the reasons for the flare-up, and the consequences.

CHRIS FISHER, EDP Political Editor

The sudden escalation of conflict in the Middle East could get a lot worse, Palestinian president Mahmoud Abbas warned yesterday. There were fears, he said, of a new regional war.

Not - as yet - in the sense of a war between the armed forces of Israel and those of neighbouring countries such as Egypt, Jordan and Syria. The governments of those countries, with the possible exception of Syria, will be keen to keep out of it. But to what extent will they be able to if Israel's military operations in the Lebanon (against Hezbollah) and in Gaza (against Palestinian militants) become more serious?

The Israeli action is liable to cause further unrest - and resistance to the elected government and coalition forces - in Iraq, and was guaranteed to produce a strong reaction from President Ahmadinejad and his soulmates in the Iranian regime. There are very close links between that government and Hezbollah. Efforts in the West to defuse the conflict are inspired partly, if not largely, by concern about the impact on oil prices. They rapidly reached a record high level yesterday. And it is only about three weeks since the Saudis were warning that oil prices could triple if the disagreement between Iran and the US, and its allies, over the Tehran government's nuclear programme turned to military conflict. That danger would also arise if the Iranians decided now to charge into military action against Israel.

The ongoing disagreement between Israel and Palestinian militants took a turn for the worse last month when an Israeli soldier was seized in a raid on an army base near the Gaza Strip that was blamed on supporters of Hamas - which is in government in Palestine.

Failure to secure his release led to strikes by Israeli warplanes in Gaza on Wednesday, and they included the bombing of a house occupied by Mohammed Deif, the leader of Hamas's military wing.

A few hours later, Hezbollah fighters crossed from the Lebanon into Israel and killed eight Israeli soldiers and captured two others. It was claimed that they were acting in solidarity with the Palestinians under fire in Gaza, and they appear to have been keen to follow the example of seizing Israeli troops. They were soon emphasising that the men they had taken would be released only in exchange for Lebanese prisoners.

The Israeli response did not stop at hitting targets in southern Lebanon, where Hezbollah is strong. Beirut airport was put out of action by missiles that blew up runways, and a blockade was imposed on its ports. Both France and Russia complained that this amounted to a "disproportionate" use of force. Be that as it may, no-one should have been surprised. There is a long history of Israel retaliating harder. And its prime minister, Ehud Olmert - who spoke of "very, very, very painful reprisals" - has been under great domestic political pressure to prove that he, despite the lack of a military background, matches up to the tough leaders who have preceded him.

Why has the old dispute suddenly erupted again? Well, it can be no coincidence that it began to happen at a time of emerging optimism that more pragmatic Hamas people in the Palestinian government were preparing to reach an historic agreement with Israel by which they would recognise that country's right to exist and accept the "two state solution" favoured by the US, UN, the EU and Russia.

This was anathema, and heresy, to the ultras in the same movement. And what surer way could there be of preventing a deal with the Israelis than by engineering renewed military conflict with that country?

A salient feature of Palestinian politics today is fragmentation. The days of PLO/Fatah domination are over. Mr Abbas is of that secular political tradition, but finds himself - to his obvious discomfort - having to work with the Islamists of Hamas. Divisions within Hamas have been growing. And there is no love lost between Hamas, Hezbollah and Islamic Jihad.

These organisations have an inclination to hate each other almost as much as they loath the Israelis. In that respect they are akin to the feuding groups resisting Roman rule that were lampooned in Monty Python's The Life of Brian. Many a true word is said in jest.

Yasser Arafat became impossible to deal with, and eventually the rest of the world gave up on him. Mr Abbas was potentially a huge improvement, but much of his power was lost almost as soon as he had won it.

With whom are the Israelis, the Americans and everyone else supposed to work with to try to secure a lasting political settlement? Mr Abbas seems to want one, but doesn't have the required authority in his country. Parts of Hamas - and maybe much of it - don't want it, and are still wedded to the concept of destroying Israel.

It is a grim truth that in some respects the Palestinians are their own worst enemies. And in prolonging their agony, they can expect much assistance from hard-line Zionists who don't want a deal either. There is a theory that Hamas's election victory was a blessing in disguise because it would make its leaders confront the reality of government and lead them down the path trodden in recent years by the Sinn Fein/IRA. But so far, things have barely started to work according to that supposition.

The immediate priority is to stop the conflict getting worse, and Mr Olmert will no doubt be coming under pressure from the White House, where President Bush can well do without life being made any more difficult for the country's forces in Iraq. Among other points, the Americans might be questioning the Israelis' decision to hold the Lebanese government responsible for the capture of the soldiers on Wednesday. Hezbollah has one minister in that administration - but only one. The denial by prime minister Fuad Siniora of any knowledge of the Hezbollah operation is plausible.

Will Mr Abbas's warning about a regional war be shown to have been realistic? Or is the current conflict something of a storm in a tea cup? Maybe we are somewhere between the two. But there has to be a likelihood that the outlook will get worse before it gets better.