JERUSALEM, Sept. 30 (JTA) — Three years of terrorism, military operations, recession and failed peace missions finally have Israelis and Palestinians agreeing on something: There is no light at the end of the tunnel. This week, Palestinians throughout the West Bank and Gaza Strip — and Arabs in Israel — celebrated the third anniversary of the intifada with rallies, marches and political pronouncements. In Palestinian-populated cities, masked militants marched through the streets at political demonstrations marking the campaign of violence launched against Israel at the end of September 2000, but the rallies were relatively small. Their size suggests popular exhaustion with the intifada, or caution after Israel´s strikes against terrorist leaders and its threat to expel Palestinian Authority President Yasser Arafat. For Israelis, the optimism that characterizes Rosh Hashanah did little to sweeten expectations for a new year free of suicide bombings and terrorist ambushes. "I think our triumph is that we have succeeded in internalizing terror so that it does not overly affect our lives," said Justice Minister Yosef "Tommy" Lapid, in one of the week´s rosiest assessments. For the Palestinians, too, the year has resulted in few gains. Arafat repeatedly was maligned by the White House, and a new P.A. prime minister contributed little to the Palestinian cause before bowing out. Now the Palestinian issue has shifted to the back burner in Washington, given the Bush administration´s preoccupation with Iraq, where the United States has to contend with its own "occupation." Though many in the West continued to champion the intifada as a "freedom movement," Palestinian terrorism has helped shift the Palestinian cause somewhat closer to Al-Qaida in the eyes of some observers. The P.A.´s outgoing security minister, Mohammed Dahlan, says that change was not lost on him. Considered a favorite of Washington but ousted in Arafat´s latest government shuffle, Dahlan told The Associated Press this week, "We did not understand 9/11 in a correct and fundamental way that would have allowed us to help the national interest of our people, to bring back the international legitimacy of our authority." Dahlan was a veteran of the first intifada, which lasted six years and had a much higher ratio of Palestinians dead to Israelis killed. Now there are three dead Palestinians for every Israeli killed, a startlingly low figure by the standards of most counterinsurgency campaigns. While the Palestinian Authority´s political and economic infrastructure is in shambles, many in the West Bank and Gaza believe they are prevailing. "We have been reduced to the point of counting the mere infliction of pain on each other, and survival of those attacks, as minor triumphs to be treasured," said Ami Ayalon, a former Shin Bet director who has been leading a grass-roots peace movement with Palestinian intellectual Sari Nusseibeh. Jailed Palestinian leader Marwan Barghouti says Palestinians have no alternative but to go on fighting. "To die is better than living under occupation," he said in Tel Aviv District Court on Monday in closing statements in his trial for complicity in 26 counts of terrorist-related murders. Many Israelis believe not enough was done to keep Arafat to his Oslo-era pledge of renouncing violence. "Israel restrained itself into a corner," Jerusalem-based political analyst Ron Dermer said. "The Israeli military is the most humane in the world when it comes to counterterrorism, which means the Palestinian regime has not been punished enough for launching war. So now we have lost deterrent credibility in our enemies´ eyes, while winning no favors from them or the rest of the world in return." Confusion about the future has bred reductive theories that the conflict. Many observers believe it is a tale of two old warriors who just cannot compromise, rather than part of an epic confrontation between two religions and cultures. "Before Arafat goes, nothing will change," said a Ramallah resident named Nidal. "But he can´t go alone. Israelis should get rid of Sharon, too."