• Achieving a historic Saudi-Israel normalization deal has been one of President Biden's top foreign policy priorities, something he'd be able to highlight when running for re-election in 2024. 
• But as fighting rages between Israeli forces and the Palestinian militant group Hamas following a terror attack against Israel, the likelihood for such a deal seems to have all but evaporated.
• Saudi Arabia is home to Islam's holiest sites, Mecca and Medina, giving it a crucial role in the Muslim world where Palestinian statehood is deeply cared about. 

Closed-door negotiations, seductive offers of weapons deals, requests for U.S. security guarantees, and even talk of supporting the Saudis with their own nuclear energy program: these were all on the table as the Biden administration worked toward clinching a Saudi-Israeli normalization agreement in recent months. 

Achieving a diplomatic deal between two of America's most important allies in the Middle East – whose ties have never formally existed – was one of President Joe Biden's top foreign policy priorities, something he'd be able to highlight when running for re-election in 2024. 

Since Saturday Oct. 7, however, and as fighting rages between Israeli forces and the Palestinian militant group Hamas, the likelihood for such a deal seems to have all but evaporated. The rapidly intensifying war is shaping up to become the worst violence of the long-running Israeli-Palestinian conflict in decades. 

More than 2,000 people in both Israel and the Palestinian territory of Gaza are dead after five days of fighting, which began with a brazen terror attack carried out by Hamas into southern Israel on Saturday morning. Israel responded with heavy airstrikes and a total siege of Gaza, cutting off water, food and electricity to the already impoverished and blockaded territory. 

This puts Saudi Arabia's ambitious Crown Prince Mohammed bin Salman in a complicated position. Saudi-Israel cooperation in areas like security and intelligence has long been an open secret, and the crown prince in September said in an interview that "every day we get closer" to a normalization deal.

But a major sticking point, he said, was the Israeli-Palestinian conflict. The United Nations classifies Israel as an occupier state over the Palestinian territories, whose occupations and annexations following the 1967 Six-Day War remain in violation of international law.

"For us, the Palestinian issue is very important, we need to solve that part ... We hope that it will reach a place that it will ease the life of the Palestinians and get Israel as a player in the Middle East," he said in an interview.

Palestinians themselves express worry and skepticism over a Saudi-Israel deal, stressing that their representatives have not been involved in any negotiations about the potential future of their status.

Saudi Arabia is home to Islam's holiest sites, Mecca and Medina, giving it a crucial role in the Muslim world where Palestinian statehood is deeply cared about. 

Israel's current government led by Benjamin Netanyahu had previously expressed no intention of giving major concessions to the Palestinians; Netanyahu in early August told Bloomberg TV that any minor gestures on his part toward Palestinians would essentially be "just a box you have to check to say that you're doing it." 

'Zero chance'

A "big victim" of the escalating Israel-Hamas war "is efforts at Saudi and Israel normalization," Fred Kempe, CEO of the Atlantic Council, told CNBC.

"U.S. officials have been spending a lot of time in Israel and in Saudi Arabia. There was the prospect of a deal, maybe if not by the end of this year, by the beginning of next year, people were giving a 50-50 chance," he said. 

"Right now, you have to give it zero chance. The Saudis just won't be able to go forward with this right now. Part of the deal would have been Netanyahu reaching some sort of accommodation with the Palestinians. That's not going to happen right now."

Israel is currently pounding the Gaza Strip with retaliatory airstrikes pursuing Hamas targets and is carrying out a "total siege" against the densely-packed Palestinian territory of 2.3 million people. Hamas has governed Gaza since 2007, and Israel has kept it under a blockade since then, most of its population unable to leave. All of its borders have now been sealed. 

Netanyahu compared Hamas to IS for its brutal tactics and attacks against civilians, and has vowed a heavy response. But the U.N. and other bodies have warned of the mounting civilian toll and stressed that "crucial life-saving supplies — including fuel, food and water — must be allowed into Gaza."

The Saudi Foreign Ministry, in response to the Hamas attack on Israel, said in a statement: "The kingdom recalls its repeated warnings of the dangers of the explosion of the situation as a result of the continued occupation, the deprivation of the Palestinian people of their legitimate rights, and the repetition of systematic provocations against its sanctities." 

And the crown prince said in a statement Tuesday: "The kingdom will continue to stand by the Palestinian nation in its quest for its legitimate rights."

A win for Iran

One clear winner of the latest developments is Iran, regional analysts say.

"The leadership in Iran will no doubt be applauding an attack inside Israel," Sanam Vakil, director of the Middle East and North Africa program at Chatham House, told CNBC. "This allows Tehran to inadvertently benefit and challenge Israel in the same way that Israeli security has attacked inside Iran's borders." Iran is the primary backer of Hamas, having provided it financial and military support for years.

Iran's mission to the United Nations has denied Tehran's involvement in the militant group's attack on Israel on Saturaday. U.S. Secretary of State Antony Blinken said Sunday on CNN's "State of the Union" that the U.S. had "not yet seen evidence that Iran directed or was behind this particular attack, but there is certainly a long relationship."

"More timely for Tehran is that it is looking to slow down Israeli Saudi normalization and through the attack, it might have achieved that," Vakil said.

With the Hamas attack on Israel, "it's very clear that Saudi Arabia will take a more gradual approach to normalization," she said. "The kingdom certainly does not want to be dragged into a broader regional war. And Iran is consistently messaging to its Gulf neighbors that any attack on Iran from Israel will lead to a domino attack on the Gulf. So they're looking to prevent that kind of kinetic activity."

Still, normalization may not be entirely dead in the water. Hussein Ibish, a senior fellow at the Arab Gulf States Institute in Washington, notes it may well depend on the extent of Israel's response, and whether the violence spreads to other parts of Israel and the occupied Palestinian territories, as well as Lebanon.

As well as being an act of terror, the Hamas attack was "certainly an effort to scupper a U.S. triangular agreement with Israel and Saudi Arabia" that may well succeed, Ibish wrote. "But," he added, "the three parties might recognize the attack for what it is, and move as quickly as possible to resume talks and redouble efforts to bridge remaining differences."

Biden's best option may be to pursue the normalization deal in his second term, assuming he wins it, Ibish said.

But for now, he contended, "If Hamas and Iran wanted to upend, and at least postpone, Mr Biden's proposed US-Saudi-Israeli agreement, they've probably already succeeded."