On New Year's Day Atif Irfan boarded an AirTran flight at Reagan National Airport in Washington with seven members of his family. Edging his way down the aisle, he wondered out loud to his wife whether the back of the plane was the best place to be. As they took their seats, his sister-in-law said she thought it was the safest part, rather than being close to the engine or wings "in case something happened".

The conversation was overheard by two teenage girls, who took one look at the mens' dark skin and beards and the women's headscarves and saw a family of suicide bombers, including three small children aged between two and seven. The girls told their parents; their parents told the flight attendant; the flight attendant told the air marshals and then the captain; the air marshals called the FBI and the airport police.

The pilot asked the marshals to remove the entire family from the plane. Then officials asked everybody else to get off so they could perform a thorough sweep. The family (as well as a family friend who happened to be on the same flight) was surrounded by armed guards, detained for questioning and then released. The plane eventually took off without them. When they tried to get on a later AirTran flight the airline refused to book them, even though they had been cleared (it has since apologised).

The Irfan family's ordeal escalated according to its own humiliating logic. And yet seven years after 9/11 it was no isolated incident. Pre-emptive, presumptive, disproportionate and discriminatory, it speaks volumes about the prevailing values those two American teenagers have lived with for much of their lives. A world that confuses Muslim and terrorist, and conflates the civilian and combatant by taking popular fear and prejudice and handing them over to state power. Driven by the maxim that you are better safe than sorry, it leaves nobody safe and everybody sorry. The only thing that prevented this particular incident from becoming yet another ideal metaphor for the war on terror is that nobody was killed or disappeared.

There is nothing particularly American about this. Like Nike or McDonald's, the war on terror may have started here but it quickly got branded and went global. In the months after the attacks on the World Trade Centre and the Pentagon, everybody wanted a piece of the action. President George Bush found himself in illustrious company. Among others, Zimbabwe's president, Robert Mugabe, and India's former prime minster Atal Bihari Vajpayee sought to ride his coattails to their own version of violent despotism.

However, few nations pursued it with such consistent zeal as Israel. "You in America are in a war against terror," Ariel Sharon said after he left the White House following suicide bombings in Haifa and Jerusalem in December 2001. "We in Israel are in a war against terror - it's the same war."

The trouble is that over the last seven years, the war on terror has been thoroughly discredited - not only morally, but militarily and strategically. Nobody listens to moderates, let alone to reason, when bombs are falling and people are dying. That is as true for the rockets that have killed a handful of Israelis as it is for the barrage of bombs and now tanks that have killed hundreds of Palestinians.

By erasing any prospect of negotiation, the violence did not weaken extremists but emboldened them. Israel may want to boost the moderate Fatah faction which governs the West Bank now. But Hamas's electoral rise was a direct result of the contempt the Israeli's showed them in the past.

Meanwhile, the Iraq war has left Iran - the primary sponsor of both Hezbollah and Hamas - with far more influence in the region than they would have had. On almost every front in almost every part of the world, including in the US, the war on terror is now seen as a colossal mistake. Only Israel did not get the memo. And it is now set to fail for the same reasons that America has.

Diplomatically, Israeli efforts to sell its bombardment and now invasion of Gaza as a straightforward extension of the war on terror have been fairly blatant. It has described the shelling of homes, mosques and police stations as the destruction of "the infrastructure of terror". Even as the rest of the world condemns it, Israel's foreign minister, and Kadima party leader, Tzipi Livni, has been telling anyone who will listen that her country's actions place it firmly within the community of nations and leaves Gazans and their democratically elected rulers outside.

"Israel is part of the free world and fights extremism and terrorism. Hamas is not," she said. And from there we are just one small step away from putting the world on notice that either "you're with us or you're with the terrorists". "These are the days when every individual in the region and in the world has to choose a side," Livni said.

Meanwhile, Israel has been busy implementing the very tenets of the war on terror that have served the US so badly, primarily that intractable political problems can be solved solely by military means with the aim of not simply bombing your enemies into submission, but eliminating them altogether and then creating resolution on your own terms from the rubble.

"What I think we need to do is to reach a situation in which we do not allow Hamas to govern," said Vice-Premier Haim Ramon. "That is the most important thing." Who he thinks should govern when Hamas has gone, and precisely what legitimacy they would have, does not seem to bother him. He does not want to change the government of Gaza, he wants to change the people.

On this matter Livni is right. People do have to choose sides. But, so far, it has not been her side. Seven years after 9/11 the world has a good idea of what's coming next and how widespread the ramifications might be - and they want no part of it. The war on terror is over. War lost. For the first time in a long time, that even appears to be true in America.

A recent Rasmussen poll shows the American public far less indulgent of Israeli aggression than many previously believed. Opinion on the bombing of Gaza is fairly evenly divided, showing 44% supporting Israel's military action against the Palestinians and 41% saying it should have tried to find a diplomatic solution to the problems.

Given the absence of any honest or informed debate about events in the Middle East, this suggests significant room for manoeuvre for President-elect Obama in pursuing a more even-handed policy towards the region, if he should chose to take it.

The benefits could strengthen America's hand throughout the region. Majorities in seven Arab nations say their opinion of the US would significantly improve if it put pressure on Israel to comply with international law in its treatment of Palestinians - generally more than say the same about closing Guantánamo Bay, according to Gallup.

That is the change both America and the Middle East need. It's also the change most of the rest of the world wants to believe in.

g.younge@theguardian.com