One must ask why is Hezbollah doing this now. It seems to me that after their high in 2000 after the Israeli withdrawal, their popularity has massivly diminished. Many Lebanese (both Christian and Muslim) see Hezbollah as a major obstacle to peace and economic development. On top of which the Lebanese now refuse to be Syria's (or indeed Iran's) pawn - as witnessed by the waning of Syrian influence following the assasination of a major Lebanese politician.
Hezbollah were counting on massive Israeli retaliation (and the inevitable emotive images of dead civilians) to bolster their domestic support. However I think this is all about Iran's domestic politics and regional aspirations. Who is the big winner from this? Iran. Their efforts to forge a militant pan-regional Shia coalition under their command is suceeding. Their president promised massive development and raised standards of living, promises that he cannot deliver. So, by provoking the West into placing economic sanctions against Iran - through WMD development, tinkering in Iraq, supporting Hezbollah - he can then say to his population, "I couldn't deliver what I promised because of the Great Satan. Sorry." The worst thing is that his policy is working. Sanctions are inevitable, war with Iran possible. The youth of Iran, once upon a time drifting Westward have now been radicalised.
Iranian President Mahmoud Ahmadinejad. He's the voice of Iran's discontent and her mouthpiece to the world. The real power, however, resides in the Supreme Leader, Ayatollah Khamenei, and the clerics who support him. Thus the dangers of a theocracy.
Why is Beirut being bombed? Beirut is one of the most sectarian cities anywhere in the world. The north is broadly Christian and untouched by Israel, however the south of the city is very much a Hezbollah stronghold - supported by an army of poor urban Shia.
What should Israel do? There's little they can do. Catch 22. If they let their soldiers be kidnapped without retaliation it will make their enemies bolder - they'll correctly see it as a sign of weakness. If they launch an all-out invasion they'll be doing exactly what Hezbollah wants them to do. I believe their current action is the least bad option.
What should the West do? A multi-national (including Muslim) force should patrol southern Lebanon and get medievel on Hezbollah's arse. This will never happen though - we're not about to do Israel's dirty work and put our already overstretched militaries in further danger.
What should Hezbollah do? Bugger off.
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