The Alito nomination is popular. Gas prices are coming down. Unemployment remains low. Bush's rating was bound to come up some. The Katrina debacle is wearing off in people's minds too. In December, Congress will be gone and the Iraqi elections will be the big story, not the war dead. His approval rating should jump pretty substantially by then.
I agree with everything you said. The President needs to fight back. Yesterday was a great first step. He needs to hammer the Dems and put them on the defensive. He needs to tout the economy and the successes on the war on terror. He needs to pormote the Patriot Act and state that because of it there has not been one terrorist attack since 9/11. He needs to remind people of the threat we face.
Like you said Alito, Gas prices, and the economy are all moving in our favor. By this time next year, if all goes well we will be in great shape.