Quite apart from the morality of assassinating Sheikh Yassin, it is the Israeli people themselves who will suffer from certain retaliation. Israel has the right to defend itself, President Bush declares, while apparently denying the Palestinians the same luxury. But the killing can have no military value at all. Whatever his authority as the founder and figurehead of Hamas, the idea that Yassin was involved in planning armed attacks is preposterous. When Israel rocketed the apartment block he was visiting last September, the ailing sheikh was reported not to have even realised that an attack had taken place. And regardless of the domestic political calculations of the Israeli government, such attempts to destroy a popular movement by decapitation are doomed to failure.

From Algeria to Vietnam, the past century is littered with evidence that such strategies invariably come to nought. Where resistance has deep roots - as Hamas's undoubtedly has in the occupied territories - it will always re-emerge, however savage the repression. Yassin has been succeeded by Abd al-Aziz Rantissi, and if the Israelis incinerate him, another will take his place. What Monday's killing has done is simply widen the range of targets on each side, expanding the arena of terror.

The chances of a lasting settlement should in reality be higher than ever before. For the first time, every significant political and armed Palestinian group - including Hamas and Islamic Jihad - is now prepared to accept a de facto end to conflict in return for an independent state in the West Bank and Gaza - just 22% of historic Palestine.

The sharp-tongued Rantissi is widely regarded as more hardline than Yassin. But, as he told me in Gaza a couple of months back, Hamas is ready to call a ceasefire that "should be seen in terms of years" in exchange for full Israeli withdrawal from the territories it has illegally occupied for the past 37 years. On another occasion, referring to the Hamas dream of Islamist rule throughout Palestine, he has said: "We can accept a truce ... live side by side and refer all the issues to the coming generations." And the organisation's new number two in Gaza, Mahmoud Zahar, confirmed its commitment to a West Bank/Gaza state in yesterday's interview with the Guardian.

But instead of seizing the opportunity for peace offered by such political signals, the Sharon government is deliberately undermining the basis for a two-state solution by carving up the occupied territories with its electrified fences, closed zones and ever-expanding settlements. At the same time, it is planning a partial withdrawal from the most heavily populated areas, while effectively annexing other areas of the West Bank and confining Palestinians to walled bantustans that can never form the basis of a viable state.

Such a rearrangement of the occupation will clearly not resolve the conflict. And considering that the US arms and funds Israel to a greater degree than any other state on the planet, such leverage might be seen as an ideal opportunity for the much-vaunted project of western humanitarian intervention. But instead of applying pressure to achieve a just settlement, the US and its friends refuse to talk to the elected Palestinian leadership, while insisting that no end to occupation is possible unless it stamps out resistance.

After September 11 2001, Tony Blair promised hope to the slums of Gaza and convinced his supporters that he would deliver US commitment to a Middle East peace deal in exchange for backing the invasion of Iraq. Now his main contribution appears to be extra funding for Palestinian police and prisons to provide security to the occupier - while Gordon Brown's response yesterday to the killing of Sheikh Yassin was to announce the freezing not of Sharon's, but of Rantissi's, (probably non-existent) assets in Britain.

None of this, of course, justifies the targeting of civilians by Hamas and others - defended by Rantissi as a "deterrent" to the killing of Palestinian civilians. If deterrence is the intention, it appears to be a failure, as Palestinian civilian and military deaths outstrip the Israeli toll by more than three to one (and five to one when it comes to children). In any event, the offer by Hamas last year of a mutual commitment to avoid civilian deaths was rebuffed by Israel.

The killing of Yassin, along with the wider bloodletting in the occupied territories, will further heighten the Arab and Muslim anger that is fuelling Islamist terror attacks. Justice for the Palestinians should self-evidently be pursued on its own merits. But given the extent to which Palestine has become a focus of global Muslim grievance, it has also become a necessity for international security. And the failure of western leaders to confront the crisis in a remotely even-handed way is now a threat to their own people.

The most dangerous delusion of our time must surely be the notion - trotted out by all manner of public figures, from George Bush to Clive James - that Islamist terror is motivated by hostility to freedom and the western way of life. As anyone who is familiar with the Arab and Muslim world, or even bothered to read successive statements by al-Qaida leaders, it is in fact overwhelmingly driven by hostility to foreign, and especially west ern, domination and occupation of Arab and Muslim countries. Of course, there are other factors in play. But from the start of his campaign in the 1990s, Bin Laden's call to arms focused above all on US foreign policy in the Middle East: its troops in Saudi Arabia, backing for pro-western dictatorships like Egypt, sanctions against Iraq and support for Israel against the Palestinians - along with the subjection of Muslim populations in Kashmir and Chechnya. Since September 11, US interference in the region has gone much further, with the invasions of Afghanistan and Iraq. The result is an arc of foreign occupation across the Middle East, unmatched anywhere else the world.

That has in turn spawned an arc of resistance, while anti-US feeling among Muslims has reached unprecedented levels, as demonstrated in this week's Pew opinion survey. Muslims now find themselves in perilously unequal conflict with the world's military powers: the US, Russia, India, China and Israel. There are also dangers that the boundaries between nationally based mass resistance movements against occupation and socially disconnected (though widely supported) terror networks of the al-Qaida type become blurred. But to address the swelling and legitimate grievances that underlie both is now a global imperative. Unless and until the occupying powers - notably the US, Britain and Israel - do that, they will be fuelling, not fighting, terror.