Unable to achieve its goals in Lebanon, the Israeli government has been left with egg on its face. Prime Minister Ehud Olmert and his neophyte minister of defense, Amir Peretz, are fighting for their political lives. Israeli newspapers demand their resignations as well as that of the bungling Chief of Staff Dan Halutz, who early in the conflict chose to bomb women and children instead of risking boots on the ground.

Just about the only person in the world who is publicly patting these losers on the back is the American president, George W. Bush -- kudos to him for managing to keep a straight face. What he�s saying behind closed doors, though, isn�t hard to guess. Indeed, some Israelis have asked whether their country�s usefulness to the White House might now be severely eroded.

There is a split within the top army echelon over the way the conflict was waged. Conscripts and reservists are complaining about poor training, a lack of weapons and having to drink from the troughs of farm animals or the canteens of fallen Hezbollah fighters.

They say nobody told them Hezbollah possessed an arsenal of sophisticated weaponry. They say their commanders told them they would be fighting �primitives� and they had no idea they would be facing a highly disciplined force. They say they followed orders and drove their tanks through valleys where like sitting ducks they were ambushed from the mountain fastness by armor-penetrating missiles.

Ordinary Israelis who from the outset believed this war was their noblest are now having doubts. The left is embarrassed at the high civilian death toll wrought by their bombers; the right is angry their army didn�t use every means at its disposal to wreak more death and destruction. The hawks are outraged that their government signed up to the terms of UN Resolution 1701, which cut short the ground war.

Some complain the war was conducted at the behest of the Bush administration so as to tame Hezbollah as a prelude to a US pre-emptive strike on Iran; others say it was done to seal the warrior status of Olmert and Peretz, who unlike their predecessors aren�t career military men. A few maintain it was engineered to test out new strategies and �Made in the USA� weapons.

Worse than mere disappointment over their military�s lackluster performance for the first time in decades, Israelis are aware of a serious existential threat.

As long as their war machine was perceived as unbeatable the Israeli state was cloaked in an aura of impenetrable power. But this is no longer the case. It�s only logical that their enemies will have been emboldened by Israel�s defeat, they say, in which case the Israeli state is no longer as secure as it once was.

So deep are the scars of doubt and insecurity in Israel�s collective psyche, that it is difficult to imagine the government will easily reconcile itself to the status quo. Whereas observers can view the conflict�s outcome dispassionately and feel some optimism that the cessation of hostilities will endure, this isn�t the case for Israel�s residents for whom winning means life over death.

Whereas Israelis, although hesitant to crawl back into their bunkers, largely see the job as unfinished, Hezbollah is basking in adulation from various spectrums of Lebanese society. This support has been reinforced since its social wing quickly mobilized to hand out wads of cash to those whose homes were damaged or destroyed without regard for the recipients� religious beliefs.

Since according to the world and its wife Hezbollah has come out on top, it�s hardly in its best interests to break the truce. It has much to gain politically from keeping a low military profile and helping to rebuild the southern suburbs of Beirut as well as the villages and towns of south Lebanon that were razed to the ground.

As things stand, Hezbollah has political and military leverage both within and without. In this case, any continuation of the fight would not only constitute a gamble but would also try the tenacity of the group�s following which has already lost so many lives and treasure.

The Israeli government, however, is desperate to save face and to re-establish what Israel calls its deterrent value. This desperation was seen two days before the cease-fire when thousands of troops were dispatched across the border without a clear objective.

It was seen when Israeli commandos broke into a deserted hospital and triumphantly returned home with one Hassan Dib Hezbollah, a vegetable seller.

And it was in evidence last week when Israeli transport planes offloaded jeeps and commandos camouflaged as Lebanese Army personnel near the Hezbollah stronghold of Baalbek, thus violating the cease-fire and incurring the ire of UN Secretary-General Kofi Annan.

It�s apparent that Israel has no intention of leaving well alone. A senior IDF officer told the New York Times last weekend that Israel is committed to hunting down and killing Sheikh Hassan Nasrallah, Hezbollah�s leader.

Amir Peretz says Israel must prepare for the next round with Lebanon. And we shouldn�t forget that Lebanon is still under siege with Israeli warships ominously poised off its coastline and spy drones regularly crisscrossing its skies.

The Lebanese government, on the other hand, is keen to play by the rules. It has sent the Lebanese Army to the south where it is in the process of setting up posts for the first time since 1975, and it welcomes a beefed up UNIFIL.

On Sunday, the Lebanese defense minister warned all groups not to risk violation the cease-fire or else be considered �traitors." He also promised that the Lebanese Army would man the borders to prevent the import of non-sanctioned weapons.

Superficially this statement appears to be a warning to Hezbollah but, in reality, it was meant for the consumption of Israel and the international community. Lebanon wants to give the message: �We are determined to stick to the truce and, therefore, any infringement will be Israel�s."

In reality, Hezbollah has agreed to host the Lebanese Army. Many of its number are Shiites from the south, whose family members are Hezbollah fighters. In any event, the army isn�t equipped to take on Hezbollah even if it were so disposed.

Israel is now in a cleft stick. Hezbollah isn�t giving them an excuse to renew hostilities.

The Lebanese government is sticking to the letter of the Security Council resolution, and the UN is monitoring Israel�s every move.

The question now is will Israel strike again before the arrival of a projected 15,000 armed internationals and risk international censure? Or will it decide to bite the bullet and give diplomacy a chance? The next few weeks will tell.