What are the odds of success on the most recent "breakthrough" in the Middle East peace process? The best answer is a line heard at the Herzliya Conference, an annual confab of Israel's strategic community, in February: "The Israelis want talks, but no deal; the Palestinians want a deal, but no talks."

So why are they both happy now that U.S. Middle East envoy George Mitchell has inveigled them into "proximity talks," that is, not face-to-face, but room-to-room, with Mitchell presumably carrying a yellow pad back and forth? (Next question: Will the scribbling be in Hebrew, Arabic or English? That may take up the first week of bare-knuckle bargaining.)

Israeli Prime Minister Benjamin Netanyahu cheered the announcement posthaste. The Arab League has given its "permission" to the Palestinians, which their president, Mahmoud Abbas, has gracefully accepted. Both sides like it because it is a charade. Vice President Biden has joined the show with his five-day trip to the region—all in the name of "restarting the peace process."

In truth, this is not a "reset," but a step backward. Israelis and Palestinians have been talking to each other ever since the fabled "Oslo Process" of 1993. They are negotiating face-to-face as you read this, about all kinds of practical matters: road-blocks, investments, tax receipts. They are in constant contact about nabbing terrorists and training Palestinian security forces. So why the "Mitchell Two-Step" slated to begin next week?

The official Abbas answer is: no settlement freeze, no direct negotiation. But the real explanation for the stand-still now segueing into room-to-room shuttling is a lot more complicated. Economists have a fancy word for it: "Pareto optimality." This a position in the bargaining process where neither side can do better by moving away from it.

In this case, both sides would do a lot worse. Think about the dreams and ambitions they would have to put on the table to eke out a deal that has eluded them for decades. The Israelis would have to yield half of Jerusalem, the "forever undivided capital of Israel." They would have to let go of settlements in the "Land of Israel." Evacuation was hard enough when it entailed the forcible removal of a few thousand settlers from Gaza. But the West Bank is the real thing, a quarter-million people whose relocation comes with the specter of civil war.

The Palestinians would have to part with the "right of return," which the Israelis correctly see as conquest by other, demographic, means. They would have to take one-half of the loaf they believe is theirs in toto—including not just Hebron and Jenin, but also Haifa and Jaffa. The prize would not be a sovereign state, but a kind of Israeli protectorate—complete with Israeli outposts and severe limits on military capabilities. Israel will not pull a "Gaza" again, which left behind "Hamastan" as missile launch-pad. Worst of all, whoever signs such a deal will end up on a death list as traitor to Islam and the Arab world. Recall what happened to Jordan's King Abdullah the Elder in 1951 and Anwar Sadat of Egypt in 1981.

Compared to these nightmares, the status quo looks "Pareto-optimal," indeed. Under the leadership of Prime Minister Salam Fayyad, the West Bank is booming, while Hamas-ruled Gaza is sinking. Foreign funds are flowing in by the billions. Though nobody admits it, the Israeli army underwrites the life-insurance policy for the Fatah regime in Ramallah. Best of all: Whatever goes wrong can always be blamed on the "Occupier."

Hence the Mitchell Minuet, a remake of the Baroque dance in which everybody circles, bows and returns to the original position. Mr. Netanyahu is happy to have a format that will bog down in minutiae. Mr. Abbas is happy to have talks that are no talks. Each side will actually negotiate with the American go-between and his masters in Washington, trying to squeeze out leverage against the other. It's been done before, in Camp David 2000, and Bill Clinton was a lot bigger than Mr. Mitchell can ever be.

Finally, there is a nice side-payment. When it is all over, both sides can blame the failure on Uncle Sam—and then, after a bit of public sulking, go back to hash out the rules of day-to-day coexistence.

This may well be the second major strategic blunder of the Obama administration. The first was the vaunted Cairo speech a year ago, when the president reached out to the Islamic world while leaning hard on Israel. The predictable result was that the Arabs asked for more while the Israelis dug in—better right away than wait for push coming to shove. Now, the U.S. is once more plunking down its prestige in a high-risk, low-gain gamble. Again, Mr. Obama has ignored an iron law of Mideast politicking: When the U.S. orchestrates, Israelis and Palestinians don't fiddle as a duo but try to sic the conductor on each other.

This part of the classic game began even before the actual talks were launched. So as Mr. Biden was in town, the Israelis staked out their claim to all Jerusalem with a bang by announcing 1,600 new apartments for the Eastern half—a move that was as subtle as a steamroller, but clearly timed to drag in the U.S. as unwilling accomplice. True to script, the Palestinians immediately snuggled up to the vice president: "This is a moment of challenge to the efforts led by the United States to get the peace process going again," Prime Minister Fayyad declaimed. And: "We definitely appreciate the strong statements of condemnation by the administration."

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What about the real game in the Middle East, which pits the U.S. against Iran? Again, the (misplaced) hope is that Dr. Mitchell's talking cure will provide a cover for the Sunni powers and recruit them into an American-led coalition against Tehran. Too bad Syria has just cemented its alliance with Iran while Riyadh et al will never hop off their favorite resting place, which is the fence. These proximity talks are a side-show and will not change the larger strategic calculus of the Arab world.

A final word to the wise: Israel and the Palestinian Authority are actually getting along quite nicely now that Yasser Arafat is dead and Fatah's mortal enemy is ruling Gaza—no broker required. If you want to know what the future could look like, go back to the Herzliya Conference in February. Enter PA Prime Minister Salam Fayyad in his impeccable double-breasted suit, delivering in his perfect English a speech Israelis had never before heard from a Palestinian leader. Essentially he told them: "We can do business with each other." The audience wasn't exactly dewy-eyed. But they gave him a standing ovation—face-to-face.

Mr. Joffe is editor of Die Zeit in Hamburg and senior fellow at the Institute for International Studies as well as Abramowitz Fellow at the Hoover Institution, both at Stanford.