It's one of those days when a lot of people are probably looking at the Middle East and scratching their heads. The Israelis have released Samir Qantar, who committed a terrible atrocity, along with four others who are defined as terrorists to Hizbullah - which Israel defines as a terrorist organisation. And all of this in exchange for two dead bodies. What's going on?

I suggest there are three things worth looking at here.

The first is that this brings some kind of closure to the Lebanon war fought over a period of 33 days exactly two years ago. According to the Hizbullah narrative, the raid across the Israeli border on July 12, 2006, and the taking of the two soldiers - Ehud Goldwasser and Eldad Regev - was initiated in the first place in order to gain new leverage for the release of Qantar.

Israel had been due to free Qantar as part of a previous prisoner exchange, the Tenenbaum deal, in 2003, although according to the Israelis Hizbullah had reneged on its commitment to provide new information on the fate of missing airman Ron Arad (whose plane crashed over Lebanon in 1986). This has led some security officials in Israel to argue that Samir Qantar is more of a headache than an asset and that his release would reduce Hizbullah's incentive to conduct similar hostage takings in the future - a case of keeping him captive being more bother than it was worth.

That 2006 war was mishandled on all sides. Hizbullah's leader Hassan Nasrallah has publicly stated that had he anticipated the severity of the Israeli response, Hizbullah would not have conducted the cross border raid. Israel's governing coalition has remained shaky ever since this war, which damaged its reputation (having failed to secure its stated goals) and which led to a committee of inquiry and to the resignation of the then-defence minister and IDF chief of staff. Only today did Israel realise what it declared it set out to achieve by launching the war: namely, the return of the two soldiers.

The international response during the war had also been shamefully lacklustre, with the US in particular avoiding the kind of diplomatic intervention that could have ended the fighting much earlier. The parties themselves would have benefited had the diplomatic effort and the passing of UN Security Resolution 1701 not been so delayed. So there are lessons to be learned on all sides, but at least there is now a greater degree of closure and perhaps a somewhat reduced prospect of future flare-ups.

Secondly, the deal provides a window into an aspect Israeli society not always on view and that has to be understood in order to make any sense of today's events. The prisoner exchange deal was not about the crisis that has enveloped prime minister Ehud Olmert and the recent investigations surrounding him. It will come as a surprise to many that the deal also met with only muted criticism from the right-wing opposition. It was not precedent setting. Israel has engaged in such exchanges in the past, including the 2003 Tenenbaum deal which was agreed by the then Sharon Likud government that included today's Likud leader of the opposition, Benjamin Netanyahu.

More than anything this is about the Israel that is still a small community, in which the stories of one or two families can touch virtually every citizen. Israel is a country of only seven million. It has a conscript army that prides itself on being the people's army, and there exists a strong sense that the state is responsible for returning home, in whatever condition, any citizen that it has sent to the battlefield.

One episode in particular haunts Israeli society - that of the missing airman Ron Arad, whose fate after 22 years is still unknown (though he is presumed dead). The Arad family is a permanent fixture of the Israeli collective psyche and no one wants to go through what they have gone through, including the uncertainty that his wife Tammy lives with. To be clear, Israelis are not celebrating today. Most Israelis probably find the deal both sickening and necessary - something that had to be done for the families, Goldwasser and Regev.

Many may see this as excessive sentimentalism and a weakness of Israeli society. The opposite argument though carries much and perhaps more weight - that this kind of social and communal solidarity, of which the willingness to make such a deal is an expression, is actually a core strength of Israeli society, especially as it continues to demand service and sacrifice of its citizenry (and that's even to those of us who consider much of the sacrifice to be an unnecessary by-product of the occupation).

And there is also something of a dreadful bargain here: the two families, and in particular the newly declared widow Karnit Goldwasser, have spent much of the last two years meeting foreign dignitaries who have visited Israel and visiting foreign capitals to explain their plight, part of a campaign orchestrated by the state. But the tables can be turned. Once a deal was available, Karnit and the families stepped forward and told the state: Now it's your turn. For two years we told the world the other side was the obstacle. If you pull out now, then we will turn all the moral stature we can summon against you.

The message was understood, the cabinet voted 22-3 in favour of the deal. It also has to be said the family conducted itself with exemplary dignity throughout the two years. Negotiations will now shift to those with Hamas for the release of Corporal Gilad Shalit, alive and held in Gaza. Several Israeli ministers emphasised the urgency to now secure a deal for his release.

Thirdly and finally, today also gives us a window into Lebanon. The celebrations and festivities surrounding the release of someone who committed such an ugly crime, and of no moral or previous political standing, make for unpleasant viewing well beyond Israel's borders. Yet a response that says a plague on all of the Lebanese for celebrating would be very out of place. So too would an analysis that exaggerates the extent to which this strengthens Hizbullah. Some Lebanese no doubt felt coerced into celebrating today. For others it was simply an opportunity to vent their anger and frustration at previous Israeli incursions into Lebanon, at the 18-year occupation of the south and at the destruction and havoc wrought by the military campaign in 2006. And no, none of that justifies Qantar's crimes or him being hailed as a hero.

The visuals today no doubt favour Hizbullah. Indeed, today Hizbullah embellished its sense of having been the victor of the 2006 war and enhanced its standing in Lebanon and beyond with the entire Lebanese leadership standing in salute. But don't get carried away. Many Lebanese are no doubt looking at the pictures of Qantar and asking themselves whether everything they suffered in 2006 was worth it for this guy. The basic divisions in Lebanon remain intact: those who support Hizbullah probably feel vindicated today, and those who oppose Hizbullah probably still feel cheated.

There is another, less obvious way in which the prisoner exchange may present challenges to Huzbullah in the medium term, even if it's a short-term boon. For Hizbullah to credibly maintain its arms and resistance posture, it needs a justification that resonates with the Lebanese agenda. The prisoners were part of that explanation. What remains now is the disputed and tiny territory of the Shebaa Farms under Israeli control. As the pretexts are removed, Hizbullah is faced with an increasingly naked challenge: Why does it not fully integrate into Lebanese politics, and can it legitimately claim to serve a Lebanese-wide interest? It would be wise to resolve the Shebaa issue, thus prodding Hizbullah into a more definitive choice between bullets and the ballot-box.

Where does all this leave us? For certain families there are mourning rituals, for others festive celebrations. Beyond that, three developments from the last weeks have all helped move this corner of the Middle East toward a more stable if still fragile equilibrium: the Lebanese, with Qatari assistance, have brokered an internal political power-sharing arrangement, and the new national unity government was just sworn in; Israel and Syria have been conducting proximity talks - peace negotiations with Turkish mediation; and in Paris last weekend, Syria and Lebanon agreed to exchange ambassadors.

There is still along way to go to achieve tranquility in the triangular border region between Syria, Israel and Lebanon. But those steps and even today's sombre exchange might help move things in the right direction.