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I think it's a boot in the pants for Abbas. The Israeli leadership need to show strength to their people, especially the hardliners. If Abbas can't do more to control the Palestinian populace (of whatever nationality) than Arafat did, then in their minds (and for their politics), he may not be an improvement over Arafat and his historical ties to militant groups.
This "turning their backs with a harumph!" gives the Israeli's three things: It's an angry public response (without the violence); it leaves their options open for retaliation if enforcement actions aren't forthcoming; it motivates Abbas. If Abbas can do something, this is his chance. "We'll validate your power if you can demonstrate you have some."
I have no idea if there's a chance for this new Palestinian leadership. Abbas may be doomed no matter what he tries. There are more than enough fanatics and manipulators on both sides of the aisle, and as with Iraq it seems likely there are many players from outside.
Any students of the region here? I'd like to learn more about underlying forces. It's always seemed there's much more going on than a two-party feud.
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