This includes Samir Qantar, the Lebanese freedom icon who has spent more years in prison than the legendary Nelson Mandela. In addition, Israel is to release the remains of some 200 Lebanese and Palestinian fighters, killed in battle over the past three decades.

Understandably, the Israelis are not very pleased with the "concessions" they have had to make. And no wonder the Lebanese, Palestinians and Arabs in general are delighted with their symbolic victory. However, the real and clear winner of this deal is Hezbollah. This is a huge political and moral boost for Hezbollah leader Hassan Nasrallah, who had repeatedly promised the people of Lebanon and the Palestinians that their loved ones will be brought home. The Hezbollah leader had cleverly turned the prisoner swap into a matter of personal honour.

Coming as this deal does close on the heels of the Doha accord that brought Hezbollah back into the unity government in Lebanon, this political victory will likely be exploited by the Shia party to further expand its base at home and the larger Arab world.

And this is a huge setback to the Bush administration's policy in the Middle East. This administration has gone to absurd lengths to isolate Hezbollah and Hamas and their ostensible allies, Syria and Iran. It has not only discouraged and cautioned its Arab allies against engaging the Hamas and Hezbollah but also resisted Israeli attempts to talk with them even for narrow political gains like the ceasefire in Gaza. Interestingly, if anyone has strongly defied Washington's diktat on the issue, it is none other than its own trusted ally and friend Israel.

While Washington pushes the Arab states to sever all ties with Hamas, notwithstanding the popular mandate it won two years ago, and shun Hezbollah, Israel is quietly doing business with the people the US insists on calling the terrorists.

Israel has already entered into a tense but successful truce with Hamas in Gaza. And it has held several rounds of talks with the Syrians in Turkey on resolution of the Golan Heights question. And now it has tacitly recognised and accepted Hezbollah as a legitimate player in the region. Where does all this leave Bush's America? Not in a very comfortable position, we are afraid. There are lessons to be drawn from the Hezbollah-Israel deal. If there is to be peace in the Middle East, you've got to talk to your enemies. This applies to the Palestine-Israel dialogue as well as the Iran-US equation. As Churchill argued, jaw-jaw is better than war-war any day.