hillary_middleastWell at least no-one walked out, as one Middle East veteran remarked to me after the meeting between Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas today. In fact, as our chief blogger Toby Zakaria observed, the public atmospherics between the two men were not too bad.

Seventeen years ago, President Bill Clinton practically forced Israeli Prime Minister Yitzhak Rabin and Palestinian leader Yasser Arafat to shake hands at the White House while observers held their collective breath. No such nudges were needed this week. Not only were there several, lingering handshakes, but even a brief animated conversation and a whispered aside.

But before we get carried away, my colleague Matt Spetalnick reminded us of all the obstacles facing the latest effort to forge peace in the Middle East. In decades of halting peace efforts, rarely has an Israeli-Palestinian peace process started with lower expectations. There were soaring words in public about the need for difficult compromises, but behind closed doors, the biggest tangible achievement was apparently an agreement to talk again.

Entrenched differences, the long history of mistrust, the looming expiration of a partial Israeli freeze on settlement-building, the threat from hardliners, and, perhaps above all, the political dynamics both men face at home: all reasons a breakthrough seems unlikely. Indeed many experts believe Netanyahu and Abbas have only come to the negotiating table, at least in part, to avoid being seen by President Barack Obama as the spoiler.

On the economy, it was a similar story, a glass half full or half empty depending on your mood. True there was better news from the housing and jobs markets,  and from retailers, suggesting the economy might not after all be heading for a double dip recession.  Nor, though, are we out of the woods or enjoying a Summer of Recovery. Indeed, most economists think tomorrow’s all important monthly labor market report could make for more grim reading.