But not because Palestinian Authority President Mahmoud Abbas is pulling out. Rather, the flotilla incident has boosted international sympathy for Hamas, the chief rival of Mr. Abbas's Fatah party and a long-time critic of peace negotiations with Israel.
"It will be difficult for [Abbas] to proceed in any direct negotiation. Hamas is gaining more ground from this operation,'' says Nashat Aqtash, a communications professor at Birzeit University in the West Bank. "When Hamas wins, that means that Mahmoud Abbas has less opportunity. This is a new obstacle to negotiations.''
In addition, says Alon Liel, a former Israeli diplomat who supports Israeli peace talks with Syria, it will be difficult for Abbas to resume peace talks during a period when funerals are being held for pro-Palestinian activists, stirring anger at Israel across the region.
"I don't know if in this atmosphere that the proximity talks can go forward in the next few weeks,'' he says.
Netanyahu cancels White House visit
The US and Israel have been pushing to transition from indirect "proximity'' talks, begun in May after more than a year of pressure from the Obama administration, to the face-to-face negotiations they say are necessary for a deal.
Both Mr. Abbas and Prime Minister Benjamin Netanyahu were scheduled to visit the White House this week for a new round of negotiations, but the Israeli leader decided to forgo his US trip after the flotilla raid. Abbas has not canceled his trip.
Despite the Israeli killing of nine pro-Palestinian activists, negotiator Saeb Erekat said on Monday that the Palestinians would not abandon the negotiations, emphasizing that they are speaking with the US only.
A statement from the US State Department on Monday said the violence "underscores the need to move ahead quickly with negotiations that can lead to a comprehensive peace in the region.''
Israel: Lifting Gaza blockade could boost Hamas
Before the botched flotilla intercept operation in the pre-dawn hours on Monday, Hamas was on the defensive domestically in the West Bank and Gaza. Hamas, which rules Gaza, has been blamed for prolonging the three-year split with the secular Fatah party, which controls the West Bank. Many blame Hamas for helping provoke the three-week offensive in 2009 with Israel by shooting rockets at southern Israeli cities near the Gaza border.
On Tuesday, Egypt – which has quietly helped Israel enforce the Gaza blockade – said it would open its border with Gaza for humanitarian purposes, though there is no indication whether Cairo will change a three-year policy barring ordinary Gazans from crossing.
Amid international calls for lifting the blockade, Israeli officials cautioned that if the international community starts calling for a lifting of Gaza blockade, it would be chalked up as a political victory for Hamas and undermine talks.
"We have to look at the bigger picture here,'' says Deputy Foreign Minister Danny Ayalon. "The blockade is still necessary to preventing Hamas from killing and destabilizing the situation in the area and also derailing a dialogue for peace. Hamas is the sworn enemy of a peace dialogue and the Palestinian Authority.''