The fact is the boat
was in international waters, had committed no crime in Israeli waters,
could have been kept away by a variety of other tactics, and was
attacked by fully-armed commandos who ended up killing many unarmed
civilians. To see Israel as the victim in this is so perverse it borders
The blowback from this monumental error will be extreme and will have lasting consequences for the Jewish state. It has committed a grievous crime in full view of the world, and this time there will be no hiding from it. Patience for Netanyahu's extremist government is wearing out, and Israel's boss, the United States, is growing wary of its destructive behavior.
What does this mean for future prospects of a peaceful settlement with the Palestinians? It's hard to say, but the international community will be far more unified in holding Israel to account. It is unlikely the US will agree to any meaningful punishment, but Obama is unlikely to let them off the hook easily.
I have always felt that Obama would prefer to deal with the Israeli/Palestinian conflict much more evenly and this gives him a perfect opportunity to reign the Israelis in. Obama won't cut military aid directly, but there will be more stringent stipulations as to what they will be allowed to do with it. The US military is also slowly changing its mind about Israel's strategic usefulness, and should it decide that Israel is seriously harming its objectives in the Middle East, we should expect some big changes in the near future.