2004 was the year of Yasser Arafat's death and of Ariel Sharon's decision to withdraw unilaterally from illegal Jewish settlements in the Gaza Strip and northern West Bank. The two events have created a new atmosphere for hope after four years of conflict.
Israel and its close ally the United States had branded the Palestinian leader the main obstacle to a peace process, due to his inability and/or unwillingness to take on Palestinian radical groups such as Hamas.
Yasser Arafat's death could enable disengagement to become a negotiated process
The Israeli Prime Minister Ariel Sharon said that was why Israel had to act on its own to "disengage" from the Palestinians, transforming a long-standing Israeli consensus that any withdrawal from occupied Palestinian and Arab territory had to be by agreement.
Mr Sharon explained the other motives for his plan in a series of newspaper interviews.
He said Israel had to take the initiative in a period of ongoing conflict and political stalemate. Otherwise, the international community might impose a solution that harmed Israel's strategic interests.
These he defines as keeping hold of occupied East Jerusalem as well as the main Jewish settlement blocks in the West Bank, and preventing the right of Palestinian refugees to return to their former homes in what was once Palestine but is now Israel. Most Israelis see this as a threat to the Jewish character of the state.
Mr Sharon was extraordinarily successful in winning support from the Americans, not only for the Gaza withdrawal, but also for his other strategic goals.
The Bush administration has promised that in any final peace deal, Israel would in effect be able to keep major West Bank settlements. And it would not be expected to accept the return of any Palestinian refugees to Israel.
Sharon has won backing from the US to keep major West Bank settlements
Opinion polls have also shown consistent Israeli public backing for disengagement.
But the prime minister has spent the year battling opponents within his coalition government, and crucially, within his Likud Party.
Most oppose giving up any occupied Palestinian land, especially for nothing in return. They were furious about the way Mr Sharon pursued his plan in defiance of party decisions.
However, as the year ends Mr Sharon appears to have regained mastery over Likud. He also appears poised to forge a relatively stable coalition with the main opposition Labour Party that should enable him to implement the Disengagement Plan.
The question now is whether Mr Arafat's death permits disengagement to become a negotiated process and a route back to peace talks - after all, the late Palestinian leader was the ostensible reason for the plan's unilateralist thrust.
Optimists say yes, because of a new moderate Palestinian leadership committed to non-violence, and now supported by the United States, Europe, and Arab states such as Egypt.
Mr Abbas is politically much weaker than Yasser Arafat
According to this view, the Palestinians are weary of war and may give negotiations a chance in order to get the Israeli army out of at least some of their land and return to some degree of normality.
But pessimists highlight the vast gaps between the two sides.
It may be true that the favoured presidential candidate Mahmoud Abbas has a completely different style of leadership from Mr Arafat's.
But his political vision and terms for reaching a peace agreement are the same: a full Israeli withdrawal from all of the West Bank and Gaza, sovereignty in East Jerusalem, and recognition of the right of return for refugees, including to Israel.
Many Palestinians believe it was because Mr Arafat adhered to these Palestinian "red lines" that Israel and America declared him an obstacle to peace.
They predict that the same charge, sooner or later, will be levelled at Mr Abbas. They also point out that Mr Abbas is politically much weaker than Mr Arafat, and therefore much less able to deviate from the red lines, even if he should want to.
In this view, despite the atmospherics, the most that can be expected for the New Year is some form of interim arrangement. That might stabilise the conflict for a time, but not resolve it, and could just as easily set the stage for renewed violence.