Israeli leadership thinks it has to react strongly to provocations to show it's still tough even though it withdrew from Gaza, lest Netanyahu convince the country that only Likud can keep Israel safe. Hezbollah knows that if it can provoke widespread violence, anti-Israeli sentiment will turn into pro-Hezbollah political support. "Moderate" Arab governments, despite their fear of their own internal extremist groups, can't ignore overwhelming public sentiment against Israel and the U.S., which the governments themselves help stoke to take the focus off their own failings, so they join their populations in denouncing Israel. Meanwhile, the realities of war (angry populations, fear of losing, and lots and lots of pictures of corpses) mean that positions get increasingly hardened.
The Bush administration pursues despicable and heartless ideology like "constructive chaos" and "birth pangs of a new Middle East" because that Middle East policy is one of the few ways to shore up support from both the religious right and neoconservatives. And in Iraq, where we're actually adding troops despite all those supposed plans to reduce forces in the fall, the Shia population is furious at Israel, the U.S., and its Iraqi leadership it sees as too acquiescent to both of the former.
Cue denunciation of Israel and the U.S. by Iraqi leadership, both political and religious, in an effort to retain popularity with the population and not be outflanked by the most radical voices (Sadr et al). As I've said before, if the Shia expand their violence from anti-Sunni to anti-Coalition, the U.S. position in Iraq will worsen considerably. And of course, all of this is intertwined, the elements continuously feeding off each other.
