Your “loose federation” concept is correct, except that the PA is a part and they’re all “palestinians”, or all middle eastern Arab, pick your term but the distinction doesn’t exist. When you read about our troops facing guerilla (terrorist?) attacks in Iraq, those non Iraqi “other Arabs” talked about are one in the same.
For this indirect approach (and I’m not convinced this is what’s happening) Hamas will have to be destroyed, at least their leadership, which has the potential to force a confrontation with Syria. IMO, Hamas leadership destroyed, the operatives morph in members of the Al Asqua Martyrs, just as the martyrs will morph into Fatah (and as Mazen is morphing terrorists into his “security service”). They share a common objective.
Not only will Hamas have to be destroyed, but Islamic Jihad and Fatah as well. Whether Abu Mazen survives action of that magnitude, I don’t know, Yasser will be enjoying his retirement in Paris, or in his grave. Hizbollah as well, which will bring a direct confrontation with Syria, and perhaps Iran.
Those deploying the indirect approach are the terrorists. The object is to beat the indirect approach, which begins by undermining the infrastructure that supports it. Rummy "shoots off his mouth", putting fear into the hearts of the leaders of the countries making up the loose federation. They can end up like the leadership in Iraq... Powell calmly tells them how to avoid that from happening. They are told they must go after the infrustructure supporting terrorism within their own borders.
The war(s) to end it all will be -within- the federation countries. If the victors are the moderates, Israel's battles against it's neighbors will be over. OTOH, if the victors are the radicals, WWIII is just beginning.