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When Israeli Prime Minister Benjamin Netanyahu set July 1 as a target to begin moves to annex portions of the occupied West Bank, securing a place in history was also in his sights.

Now, just weeks later, Mr. Netanyahu has traded one date with history for an entirely different one: an agreement to normalize ties with the United Arab Emirates in return for putting annexation on ice for the near future.

The move, announced last week with President Donald Trump, would make the UAE only the third Arab country to agree to full relations with Israel in its 72-year history. And it has won Mr. Netanyahu comparisons to iconic Israeli leaders who cut peace deals with Egypt and Jordan 鈥� Menachem Begin and Yitzhak Rabin, respectively.

It also showed signs of shifting how Israelis view themselves in the region.

Suddenly, Israel鈥檚 news media is flush with images of Dubai skyscrapers and breathless speculation about the Arab countries that might be next in line 鈥� Bahrain, Morocco, Oman, even Sudan. After years of talk about the quiet alliance with Gulf Arab nations, the deal taps Israelis鈥� longings for normalcy and acceptance in the Middle East, a thirst that cuts across the lines of Israel鈥檚 fractured politics.

鈥淚srael is part of this region, and the fact that we have been isolated from them for 72 years on a formal basis is coming to an end. I think that we haven鈥檛 really begun to understand the huge impact. If this thing does what it鈥檚 supposed to do, the entire region can benefit,鈥� says Jonathan Medved, the founder of OurCrowd, a Jerusalem-based venture capital investment company.

Palestinians left out

Yet other Israelis put the diplomatic accomplishment in the context of other immediate and longer-term national priorities, including battling the coronavirus and securing peace with the Palestinians.

Tamar Sidi, a psychologist in Herzliya, says while normalized ties with the UAE would be wonderful, she thinks that Mr. Netanyahu is overblowing the dimensions of his achievement. Israel has had informal ties with the UAE that go back more than a decade, and Mr. Netanyahu鈥檚 annexation move was blocked, politically and diplomatically. She says she鈥檚 concerned that the Palestinians are being left out of the equation.聽聽

鈥淭hat鈥檚 the main problem we have, so I wonder where that is in the grand scheme,鈥� she says.

Though the deal doesn鈥檛 include direct progress on a two-state solution with the Palestinians, Israeli peace advocates believe the mothballing of Mr. Netanyahu鈥檚 annexation push (the prime minister insisted he hasn鈥檛 given up on it yet) is nevertheless a historic blow to the Israeli right.

鈥淭his was the Netanyahu dream to make history: bring back the biblical land to the people of Israel. This was the dream of the settlers,鈥� says Alon Liel, a peace activist and a former Israeli ambassador. 鈥淗e worked hard to accumulate political support in Israel. He had a majority in the Knesset. And, boom, suddenly the world is stopping it. This is a knockout for the imperialist visions of Israel.鈥�

Mr. Liel also sees a shift in Israelis鈥� thinking about their place in the region. 鈥淚n the last 15 years, Israel ran away from the Middle East into the arms of the East European countries like Greece, Romania, Poland, Hungary,鈥� he says. 鈥淭he Middle East might be our physical neighborhood, but not our cultural and commercial neighborhood.

鈥淗ere, suddenly, Israel discovered that there are Arabs that are worth being friendly with and associating with,鈥� he adds, tongue-in-cheek.聽鈥淣ot only selling arms, but tourism and commerce.鈥�

Until now, Israelis traveling to the UAE have been required to enter with passports of a third-party country. Religiously observant Israelis like Mr. Medved would replace their skullcaps with baseball caps to lower their profile 鈥� even if their Emirati counterparts knew exactly where they came from. Conversations between the two countries needed to be held over the internet 鈥� though the phone links were opened on Sunday.

鈥淭his is one of the things that鈥檚 not right or left, Trump or Biden, Bibi or Gantz,鈥� Mr. Medved says, referring to the prime minister by his nickname and his recent election rival, Benny Gantz.聽鈥淓veryone should say, hooray. This is really good news. What鈥檚 the downside?鈥�

A consensus play

Indeed, a poll by Israel鈥檚 Channel 12 television news found that 76.7% of Israelis prefer normalization with the UAE to annexation; 16.5% preferred the opposite. In a June poll, Mr. Netanyahu鈥檚 annexation push had garnered tepid support 鈥� 4% 鈥� as a government priority.

The surprise deal with the UAE, on the other hand, spoke much more to the Israel consensus. That gives the prime minister a chance to change the subject at a time when he faces regular demonstrations outside his residence over the pandemic-induced economic crisis and his corruption trials. The deal also comes at a time when coalition bickering is driving speculation that Israel is headed toward elections yet again.聽聽聽聽

鈥淭his is Netanyahu pulling a diplomatic rabbit out of the hat that says 鈥榦nly Bibi鈥� can lead,鈥� says Jason Pearlman, a communications consultant who recently advised a rival to Mr. Netanyahu in his Likud party.

鈥淭his is something that鈥檚 mainstream. There are even a bunch of left-wingers that will appreciate this. He鈥檚 desperately trying to retain his political qualitative edge: He鈥檚 lost on corona, he lost on annexation, he can鈥檛 claim he鈥檚 strong against Hamas; what else can he claim? He鈥檚 bringing regional peace.鈥�

The deal with the UAE would strengthen the geopolitical alliance between Israel and Sunni Arab countries in the Middle East against Iran, Syria, and its Lebanese Shiite ally Hezbollah.

It could open the way for a blossoming of bilateral trade 鈥� something that never materialized in Israel鈥檚 peace with Jordan or Egypt. Business analysts note the UAE has built a diversified economy that is likely to embrace Israel鈥檚 innovative technology startups in sectors from finance to green energy to water. Israeli tourists are likely to be attracted to Dubai鈥檚 hotels and shopping.

鈥淓verybody鈥檚 talking about it. Apparently the prices are not expensive. It鈥檚 less than a three-hour flight and luxurious,鈥� says Tom Misgav, a Tel Aviv lawyer who has already perused a travel website for Dubai resorts. 鈥淔rom what I鈥檓 hearing, they鈥檙e just waiting for the Israelis to come.鈥�

New thinking about Netanyahu

The UAE agreement scrambled the usual chorus of detractors and advocates of the prime minister.聽

Nahum Barnea, a left-leaning political columnist for the Yediot Ahronot newspaper, wrote that the deal is 鈥渉istorically significant in regional and domestic Israeli terms. ... Netanyahu deserves high regard.鈥�

Yet leaders of Jewish settlers in the West Bank 鈥� some of Mr. Netanyahu鈥檚 most loyal backers 鈥� alleged betrayal and warned the prime minister was headed toward a break with his ideological base. In three consecutive election campaigns since 2019, Mr. Netanyahu made annexation a central promise.

鈥淚f the state of Israel sells sovereignty [in the West Bank] for a piece of paper from a country that has never threatened Israel and is far away from Israel, that鈥檚 a scam,鈥� shouted Yossi Dagan, the head of the Shomron regional council of settlements.

For now, the deal plays to the prime minister鈥檚 strategy of normalizing ties with countries in the region first and then turning to the Palestinians 鈥� known as the 鈥渙utside-in鈥� approach. But it鈥檚 unclear whether it will all add up to a boost in Mr. Netanyahu鈥檚 political standing. Though some believe that the move will attract Israelis in the political center, he has alienated many through years of divisive rule.

鈥淵ou can鈥檛 avoid that we haven鈥檛 solved the Palestinian situation. We may dream of one thousand days and nights in Dubai, but we live more with Gaza,鈥� says Mr. Misgav, who wondered aloud whether the history-making move will whet Mr. Netanyahu鈥檚 appetite for new diplomatic moves.

鈥淢aybe it will change his perception. Does he want to go down in history as a prime minister who went to jail on three corruption indictments, or as a peacemaker?鈥�