If Camp David succeeds, it will likely mean a settlement of issues that, as a somber Bill Clinton said in announcing the summit, “go to the core of both sides’ identity.” This means Israel must hand over, once and for all, hard-won land that Jews have claimed since ancient times, giving the Palestinians a quasi-state in its midst. The Palestinians, for their part, must accept the bittersweet reality of permanent domination by Israel. But if the summit breaks up without an accord, NEWSWEEK has learned, both sides are already preparing for a terrible new bloodletting by fall, possibly an all-out guerrilla war that could set relations back to the grim ’60s and ’70s. A third possibility is a partial accord that resolves some final issues and puts off the conflict yet again. Whatever emerges from the rustic cabins of Camp David in coming weeks, it could make or break the reputations of both Barak and Arafat.

The summit (or summits) could also mark a critical juncture for Clinton. Especially on foreign policy, some critics still see his as mainly a photo-op presidency–long on imagery, short on substance–typified by the shot of Clinton stage-managing the famous handshake between Arafat and the late Israeli prime minister Yitzhak Rabin on the White House lawn in September 1993. Back then, when the two sides first agreed to meet, the new U.S. president was only a prop; he presided over a ceremony that had been prefigured in secret Israeli-Palestinian talks in Oslo. Seven years on, Clinton is creating history himself in an ultimate test of his much-praised gifts as a global mediator. A final peace deal made here on his turf–just a helicopter hop from the White House–would seal his rep as a serious foreign-affairs president. Jimmy Carter, after all, has long claimed Camp David I (the 1978-79 Egypt-Israel accord) as his greatest achievement.

The risks for the president are high: failure could fall squarely on Clinton’s head. Unlike most presidential summits, “nothing is precooked here,” says one diplomat. Ostensibly, Camp David is about agree-ing to a “framework” for “final status” issues. But that’s just diplo-jargon. Clinton, Arafat and Barak will haggle over the central elements of Palestinian-Israeli co- existence this week. Everything is likely to be thrown into the mix at once: the division of Jerusalem’s neighborhoods as Israeli or Palestinian, conditions for the return of Palestinian refugees who fled in 1948 and final borders. Even long-jaded Mideast hands are overwhelmed by the magnitude of what’s at stake: “I’ve been at this for about 20 years,” says one U.S. diplomat, “and these are the toughest issues that Arabs and Israelis will ever negotiate.”

Like warriors of old, the participants are quietly girding themselves for what they know will be an exhausting, drawn-out contest. Many expect that the summit will follow the pattern of most Mideast talks: long days of violent mood swings and abrupt position shifts, of numbing rehashes of age-old obstinacy and staged walk-outs. Also typically, the talks will likely go to the eleventh hour. “Jimmy Carter thought Camp David would be over in three days. It took him 13,” says William Quandt, a former Carter staffer who was there in 1978. Adds Samuel Lewis, an ex-U.S. ambassador to Israel who was also at Camp David: “Part of the game is to show how hard it is to get a deal. So you can get back home and show that you fought to the death.” The informal deadline this time is July 19, when Clinton plans to leave for his last G7 summit in Okinawa. But participants concede the talks could reconvene after Okinawa and stretch into August or longer. That’s because the real deadline may be Sept. 13, when Arafat has said he’ll unilaterally declare statehood if there is no peace deal. Yet even that may be negotiable.

Knowing what’s ahead, Clinton has cleared his schedule for the next week at least, canceling fund-raisers, a speech to the NAACP and a state dinner. The president has pored over events of 1978, studied physical maps of Camp David and planned inspirational walks through corridors featuring photos of Anwar Sadat and Menachem Begin, the ‘78 dealmakers. “He literally has lived this,” says an aide. The Palestinians, too, have sifted through records from the first Camp David summit, and Barak is rereading the memoirs of David Ben-Gurion, the Israeli founding father who also made unpopular concessions like internationalizing Jerusalem.

Barak comes ready to make major concessions of his own “if Arafat reciprocates,” the Israeli leader’s spokesman said late last week. Israelis are tired of the endless bloodshed, and Barak wants to “end this conflict with as great a degree of finality… as it’s possible to get.” Privately Arafat’s people have also begun to hint at possible concessions–such as permitting Israel to annex Jewish settlements that straddle Palestinian land. Arafat, who is 70 and ailing, “understands his moment has come as national leader to grab the opportunity of making peace for generations,” says Gilead Sher, a senior Israeli negotiator. But publicly Arafat hasn’t wavered from his unrealistic demand that Israel withdraw to its old June 4, 1967, border, that is, from all of the West Bank, Gaza and East Jerusalem.

For the summit to succeed, the Palestinians and Israelis will each have to swallow an almost indigestible compromise. For the Palestinians, this means accepting a demilitarized state that will forever give up the right to defend itself. Israel, meanwhile, must welcome a new, somewhat hostile nation that many of its citizens think will be wrapped around its vitals like a permanent tumor (map). That’s why two central issues–the status of Jerusalem and refugees–are so hard to settle. Israel insists on retaining sovereignty over the “eternal” city and hopes a deal will win world recognition of that right. The Palestinians want to “share” sovereignty. On a second key issue, if too many Palestinian refugees are allowed back, the Jewish state could turn into an ethnic nightmare, “a Bosnia,” says an Israeli negotiator. Among the solutions now floated: enlarging Jerusalem to include both Jewish and Arab suburbs, thus giving the Palestinians the face to say they own part of the city, and permitting token returns of Palestinians, with billions of dollars in aid going to the rest.

So difficult are these problems that, even as Israel’s diplomats set off for the peace mission in Washington, its generals were readying for war back in Jerusalem. NEWSWEEK has learned that Israel is conducting exercises, including attacks on mock villages, to prepare for possible combat by Palestinian guerrillas in the West Bank and Gaza should Barak and Arafat fail. The Palestinians, meanwhile, are believed to have smuggled antitank missiles in through tunnels. “If the summit is a dead end, then there will be war,” a senior Israeli military official says flatly. Negotiators on both sides are laying the groundwork for possible failure. Barak has carefully orchestrated a campaign to win over world opinion by publicizing concessions–including what one Israeli called “deliberate” disinformation like an offer to hand over 96 percent of the West Bank. In fact, sources tell NEWSWEEK, the Israelis offered only 87 percent, with 10 percent remaining in Israeli hands under a leasing arrangement. Barak knows that if there’s a war, Arafat’s strategy may be to go for a quick U.N.-brokered ceasefire and then an international peace conference. There Arafat might hope to win more favorable terms–unless the conferees are on Israel’s side.

Another problem: Barak and Arafat each leave behind an anxious public eager to crucify them if they give up too much. Barak’s ruling coalition is shakier than ever. Within hours of Clinton’s announcement of a summit on Wednesday, Natan Sharansky, head of a small Israeli party representing Russian Jews, announced he was quitting Barak’s coalition. Another party, the National Religious Party, followed. His major coalition party, Shas, also threatened to leave. By the end of last week Barak, concerned about public support, had begun to downplay chances of a breakthrough. A new poll in the Maariv newspaper showed that Barak would now lose a general election to ousted prime minister Benjamin Netanyahu, whose popularity was at rock-bottom last year in part because he was seen as an obstruction to peace. Arafat is also mistrusted by his own people; a majority say in polls they believe he’ll sell them out.

Camp David’s tranquil setting may help make the tough choices a little easier. The atmosphere, says Lewis, “has a calming influence. You’re not in the middle of a crowd of press guys. You’re not subject to much pressure from your constituents. Everybody dresses very informally. You can play tennis, pool and chess, and walk.” There are bicycles for Arafat, who likes to ride. Clinton’s warm relations with both leaders could push things along, too, as will his demonstrated skill at mediation. At the Wye River summit in the fall of 1998–a grueling nine-day marathon–Arafat was “amazed at [Clinton’s] command of the details,” says a State Department official. The Israelis were impressed too. “Clinton’s got sachel–common sense,” says Dore Gold, Israel’s former ambassador to the United Nations. “Sometimes people are great diplomats but are ignorant of politics. He’s got the unusual ability to do both.”

This time the president may find himself playing marriage counselor as much as mediator. For Arafat and Barak are said to despise each other. “There is no trust or warmth between the men,” says a top Israeli negotiator. The last time the two met, in Ramallah in May, the atmosphere was icy. “Barak was disdainful and Arafat hurled accusations at him,” says a participant.

In the end, Clinton is hoping that Camp David’s historical resonance will inspire Arafat and Barak to transcend the personal gamesmanship–and, ultimately, their differences. One positive sign: on the summit’s eve a Palestinian negotiator who had previously been balky began invoking the grandiose language of history. “The destinies of our grandchildren and their grandchildren rest on the shoulders of these two leaders,” he said. “This is their burden to bear.” In coming weeks it is a burden they will share together in the mountains of Maryland–while the world awaits the outcome.