Well, I'm persuaded by Steven's argument on USS Clueless that after Israel finishes building the wall, or even before, the Arab territories they are withdrawing from are headed towards war. I'm also convinced by his assertion that they know this and are counting on it. The only question is if the civil war will actually make Israel safer or not.

But the most important result for Israel is that it will make Palestinian disunity blatantly obvious and undeniable. When others demand that Israel negotiate, they can respond, "Who should we negotiate with? Who among the Palestinians can actually speak for them all and can deliver on any promises made in negotiations?"

If having a response to those who demand they negotiate would stop terrorism, this argument would make some sense. Since it won't, we are left with the idea that terrorists killing each other off will mean there are fewer to attack everyone else. This is exactly the opposite of what we want for Iraq, where we are trying to prevent civil war at all costs.

Since the wall was placed so as to separate certain centers of terrorist activity from centers of Jewish population, the initial effect was indeed a drop in deaths. Unfortunately, if there are large populations of terrorist sympathizers within the wall, new centers will spring up there. Only if we consider Arabs inside the wall utterly separate from those outside the wall can we claim that a civil are will weaken those outside the wall rendering them less able to cause trouble inside the wall.