THE UNOFFICIAL Israeli-Palestinian peace agreement unveiled this week in Geneva will probably never be adopted in its present form. But already it has had one of the effects its authors hoped for: It has shaken up a political and diplomatic situation that had settled into a dull but painful stalemate. Both Palestinian leader Yasser Arafat and Israeli Prime Minister Ariel Sharon felt obliged to take their own initiatives. Mr. Arafat dispatched his new prime minister, Ahmed Qureia, to Cairo in an attempt to broker another cease-fire agreement by Palestinian militants. Mr. Sharon announced his willingness to meet Mr. Qureia and has begun dropping hints about evacuating Jewish settlements. Even the Bush administration has been roused from its latest diplomatic torpor: President Bush called the Geneva accord "productive," and Secretary of State Colin L. Powell met with its principal negotiators yesterday.

Sadly, much of the activity merely serves to illustrate how progress toward a two-state settlement is stymied by the current combination of leaders in Ramallah, Jerusalem and Washington. Mr. Arafat, who has managed to restore his domineering position over Palestinian affairs in spite of U.S. and Israeli attempts to sideline him, dispatched a letter to Geneva nominally endorsing the sample settlement. All too characteristically, however, Mr. Arafat attached a twist: His letter also endorsed a U.N. resolution providing for the return of Palestinian refugees to Israel, thereby negating the principal Palestinian concession. As he demonstrated during the final settlement talks sponsored by the Clinton administration three years ago, Mr. Arafat's interest is not in securing a peace but in improving his tactical position.

Mr. Sharon's recent gestures haven't taken the pressure off him; polls show a large majority of Israelis dismiss them as unserious, and the prime minister's approval rating has sunk below 40 percent. But Mr. Sharon and other senior figures of his Likud Party appear to be contemplating potentially explosive steps toward imposing a final settlement unilaterally. This would involve completing a security fence along a border of Israel's choosing, effectively annexing significant parts of the West Bank, while withdrawing Jewish settlements lying outside that boundary. Mr. Sharon and his fellow nationalists thus would seek to preempt the more equitable settlement laid out at Geneva, under which Israel would evacuate all but 2 percent of West Bank lands.

Meanwhile, Mr. Bush, after delivering several soaring speeches committing himself to pursuing an Israeli-Palestinian settlement, has lapsed into a policy of low-key maintenance of the status quo. State Department officials are trying to negotiate the route of Mr. Sharon's fence and persuade him to dismantle some of the dozens of new settlement "outposts" his government has created in the past 18 months. They are also encouraging the Palestinian cease-fire. The White House may hope that such diplomacy will allow it to avoid both deeper involvement and a major crisis in the coming reelection year. That is a risky bet. The winner of next year's U.S. presidential election may find that the negotiated and balanced two-state settlement envisioned in Geneva is no longer so possible.