Even before Mahmoud Abbas announced that he would not seek re-election as the Palestinian president, throwing the Palestinian Authority into chaos, America's closest Arab allies, Saudi Arabia and Egypt, had begun to despair over Washington's Middle East missteps, government officials and political experts said. With Israel having rebuffed American calls to freeze settlement-building, and with the prospects for substantive peace talks fading, Saudi Arabia and Egypt are increasingly viewed in the region as diminished actors whose influence is on the wane, political experts say. They have been challenged by Iran, opposed by much smaller Arab neighbors, mocked by Syria and defied by influential nonstate groups like Hamas and Hezbollah. Even while Iran has been focused on its domestic political crisis, and Syria has struggled with an economic and water crisis, their continued support for Hamas and Hezbollah has preserved for them a strong hand in matters like the formation of a new government in Lebanon and efforts to reconcile Palestinian factions, officials and analysts said. Officials in Saudi Arabia and Egypt acknowledge all this; they admit that they are no longer masters of their universe. What they do not agree upon is how to respond. King Abdullah of Saudi Arabia has decided that Arab unity is the only way to re-establish the kingdom's leading role and to blunt Iran's growing influence. The king has begun a diplomatic drive to smooth relations with two Arab leaders who have insulted and admonished him in the past, Col. Moammar Gadhafi of Libya and, more recently, President Bashar Assad of Syria. Egyptian officials say they wish the king well but have declined to participate in his reconciliation initiative because they think it will fail as long as Syria determines that the advantages of playing the spoiler outweigh the gains of pushing for peace. 'If there is no peace, then all those who bet against peace are winning,' said an Egyptian official who spoke on the condition of anonymity to avoid increasing tensions with the United States or Saudi Arabia. 'And all those who act and bet there will be peace are losing, like us. We are losing because we are putting this bet.' The great promise of President Barack Obama's June speech in Cairo, officials and political commentators said, was severely damaged when Secretary of State Hillary Rodham Clinton, on her recent trip to the Middle East, praised as 'unprecedented' Prime Minister Benjamin Netanyahu's plan to slow the building of settlements. That left the leadership of Saudi Arabia and Egypt -- the two regional American allies most committed to negotiating with Israel -- exposed, embarrassed and weakened, political analysts and government officials. 'Egypt's role is receding regionally, and its cards are limited,' said Emad Gad, an expert in international relations at the government-financed Ahram Center for Political and Strategic Studies in Cairo. 'Their main card, which is reconciliation and peace, is receding.' Egypt says these efforts will come to nothing until there is progress in the peace process, an approach the Saudis have not accepted. Even as its vast reserves of oil money have expanded its global influence, Saudi Arabia finds itself unable to exert its will even on its own border, where it blames Iran for stoking an uprising against the government in Yemen; or in Lebanon, where its chief source of influence, former Prime Minister Rafik Hariri, was assassinated. Even its goal of leading the Persian Gulf states, under the umbrella of the Gulf Cooperation Council, has faltered. 'Saudi's role in the last 10 years has declined,' said Abdulkarim H. al-Dekhayel, a political science professor at King Saud University in Riyadh. 'The leadership now feels it has to try to reset the agenda.' The Saudis have decided that the key to re-establishing a strong hand in the region rests broadly in Arab unity and specifically in Syria. Syria has close economic and political ties with Iran. It hosts the political leadership of the militant group Hamas. It shares a border with Iraq and has been accused of allowing militants and weapons to cross over. It has a close alliance with Hezbollah. All of these are excellent tools for undermining Saudi efforts to blunt Iran and push for peace with Israel. 'The relations between the Arab countries, if they are solid, if the understanding is there, if the cohesiveness of their policy exists, then there is no worry,' said Prince Saud al-Faisal, Saudi Arabia's longtime foreign minister. 'It is only when there is division, and looking for other alternatives between the Arab countries, that creates problems.' But Saudi Arabia's challenge is also one of leverage, political analysts and Saudi officials said. How does Saudi Arabia convince Syria to switch from the anti-peace camp to the pro-peace camp? The Saudis have hinted at two strategies. One involves giving Syria much-needed economic assistance. The other, though not stated directly, involves Lebanon. Syria has made it clear that it views events in Lebanon as central to its national security, as well as its pride. Saudi Arabia has tried in recent years to keep Lebanon in its orbit through proxies and cash infusions. But lately it has suggested that it might not object to Syria reasserting political control there. 'What is recognized is that Lebanon is more important to Syria than any other Arab country,' said a Saudi official who spoke on the condition of anonymity so as not to antagonize officials in either country. 'It's in its backyard. We understand that. But what we are looking for is some kind of Arab unity to stop foreign intervention in our Arab affairs.' Egyptian officials, for their part, have been trying to reconcile the Palestinian factions, which have been at odds since Hamas took control of the Gaza Strip. While that is looking ever more remote, the Egyptians believe that a deal between Hamas and Fatah would already have been reached as a result of their mediation efforts if not for intervention by Syria, officials said. Egyptian officials say they would be delighted if Saudi Arabia succeeded, not only in mending relations with Syria, but also in convincing the Syrians to sever ties with Iran, stop supporting Hamas and actually support the Arab initiative, which offers Israel peace in return for withdrawal to 1967 border lines, establishment of an independent Palestine with East Jerusalem as its capital and a 'just solution' to the refugee problem. But the Egyptians said they simply did not believe that would happen. 'Does the West give any support to those moderates on the Palestinian front, on the Arab side, that advocate peace, that say, 'It is not about resistance anymore, but what we want can be achieved through negotiations'?' said the Saudi government official. 'The answer is, 'No.' Do we have an empty hand? The answer is, 'Yes.' ' 