TOM FOREMAN, ANCHOR, THIS WEEK AT WAR: Hamas' military victory in Gaza prompted an urgent meeting this week among moderate Arab leaders and the Israeli prime minister. They tried to bolster support for the new Fatah-led Palestinian government to figure out how to isolate the radical Islamic group.

Are the prospects for a united Palestinian state becoming even more elusive? And can a new envoy find success where so many have failed before? Here with me is Daniel Levy, he is the director of the Middle East Initiative at the New America Foundation and in our Jerusalem bureau, CNN's Ben Wedeman is standing by...

FOREMAN: I want to turn to the map here. Because this can be such a confusing thing for people to understand. As we move in, here is Israel, we have got Gaza down here, this is the area we're talking about, which effectively now is being run by Hamas. And over here we have the West Bank, which is effectively being run by Fatah.

Let me ask you this, Daniel. Is the government, is Fatah essentially conceding right now Gaza is out of our hands, we can't deal with that, we have to hold on to what we've got?

DANIEL LEVY, FORMER ISRAELI GOVERNMENT ADVISER: In the very, very short term, yes, but that can't last for long. We're still talking about a two-state solution. Not three states. Not one state. That brings you have to bring ultimately the West Bank and Gaza together. One of the most interesting things at that Sharam (ph) summit of the leaders you referred to was that the Egyptian president said we'll have to go back for working for Palestinian unity. People don't like to hear it, but ultimately the deep division on the Palestinian side won't advance the two-state solution.

And somehow those two sides are going to have to come back together again.

FOREMAN: It seems like the Palestinians have plenty of enemies in the world without being enemies to themselves. And yet that's what they're doing right here, aren't there?

LEVY: They're being enemy toss themselves, unfortunately, and of course it's still primarily a Palestinian responsibility, unfortunately we don't come to this with clean hands, either. The external community, America, Israel on the one hand, others such as Iran on the other, have encouraged this division. We need to go back to promoting peace between Israelis and Palestinians, not conflict between Palestinians and Palestinians. That's been a mistake to drive one side home against the other, I think...

FOREMAN: And Daniel, very simply, what is in this for the U.S.? Why would the average person watching this show in the United States care?

LEVY: I don't expect the average person watching this show to go and read the 70-odd pages of the Iraq Study Group report, for instance. Were they to do that, they would see that a significant chunk of the report is about the way different things that happen in the region are interconnected. If you want to restore America's credibility, if you want to be able to ask your allies to take a leadership role and to actually do some heavy lifting in the region and if one wants to push back al Qaeda radicalism, then the Israeli Palestinian conflict is absolutely central to all of that.

As long as this is collapsing, deteriorating and America is getting a fair chunk of the blame, people in the region are going to be more angry, and it affects your security here.

FOREMAN: All right, Daniel, one of the solutions has been proposed now, certainly by the quartet now, these big powers, is Tony Blair. He's out of prime minister, but now they want him to be the envoy to go down and help solve this issue. Is he the right guy?

LEVY: Tony Blair brings incredible talent, capacity, stature to this position. It will be very difficult. Let's remember something. Tony Blair achieved some really remarkable breakthroughs in Northern Ireland. Now how did he do that? One of the things that he did was he brought the militants into the process. The people who were the terrorists who we couldn't deal with, etc, were the people who are now sitting in a shared Northern Irish government with the unionists, with the Protestants. So he brought in the militants.

Now the other things to remember is that although the mandate of Tony Blair focuses mainly on the economics -- and he should pursue that, sooner rather than later, we will all understand there are political issues here. And to achieve a stable Palestinian state alongside Israel, we're going to need to know where does Palestine begin and end? Where is the border? Where does Israel begin and end? What happens to settlements? Security, et cetera.

So he's going to have to deal with the political issues if he wants to be successful...

For the complete transcript, please visit the CNN website.