My assessment of Netanyahu's best move being to continue construction slowly while officially "extending" the freeze miscalculated a key factor: The Obama Administration.
I assessed that given the history of the Obama administration's success on settlements, they would likely ease off calls for a settlement freeze. They would either know better than to put Bibi in a corner, or lack the confidence to push for a freeze again, especially just 2 months before midterm elections. Instead, President Obama reiterated the call 3 days before the freeze ended, in front of the entire UN General Assembly. The administration is still pushing a 60-day freeze extension.
In terms of a sustainable peace, a settlement freeze is a reasonable and productive step the Israeli government can take. However, by calling for a freeze without being able to enforce the demand, Obama fosters Palestinian maximalism while giving Netanyahu the option of closing ranks with his right wing base. The call is fine, but without placing a cost for non-compliance on it, its only a paper moon. Additionally, linking a freeze to the peace talks was an overly risky move considering that there was clearly greater than a 50% chance the freeze would not be renewed. This strategic error now jeopardizes the talks.
And Obama is still taking blame for pushing Israel too hard. He incurs all the costs with little benefit.
From here, the administration should reiterate commitment to the peace process. This will cut their losses with Netanyahu who is already reiterating commitment, and force the Palestinians to either continue with the process or risk alienating the United States. It's impossible to see this ending in a way that makes the Palestinians happy, but perhaps this is the option that will make them the least aggravated about what they'll perceive to be US capitulation to Israel.
And Bibi emerges as a brilliant strategist whose political savvy was underestimated. Again.