He's right in saying "it wasn't about Israel and the Palestinians... it was about World War III, the war which began last September"... except for one thing: WWIII didn't start last September. A War on terrorists (specifically on Al Qaeda) started last September. World War III will start when the U.S. invades a sovereign nation because it doesn't like it (that's Iraq for those keeping score at home), because it will be the signal to the rest of the world that the United States has unilaterially decided that it has the right to decide which leaders a sovereign nation is allowed to have, and the cries of "neo-colonialism" will be proven correct. (The first hint of that was in yesterday's speech; arguing that the Palestinians will only get peace when they elect the "correct" leadership, whether they stop the bombings or not, is a very clear signal that sovereignty is dead.) There is a valid argument to be made (and that is being made) that the United States is justified in its actions, but nevertheless the implications will be very clear to everybody- if it is the United States' interests, it will set aside self-determination and national sovereignty without thinking twice. The international system will be dead.
Where I differ from Den Beste is in his (at least seemingly) cavalier attitude about the whole situation. This looks like exactly the kind of war that can and will spiral out of control. It can spiral out of control in the Indian subcontinent (where Muslims and Hindus are in conflict and where the Indians can easily use U.S. rhetoric to justify pacification of Kashmir), it can spiral out of control in the Middle East (a government that has no way out is a dangerous animal indeed), it could very well lead to Huntington's Clash of Civilizations (if Islam as a whole decides that it is in danger of being wiped out... it may have a point if the war goes badly), and it can spiral out of control everywhere else (as every anti-governmental group gets labelled "terrorist" and government repression far worse than anything the United States would consider appropriate is justified by the needs of "national security").
If you are too wedded to negotiation as the end-all and be-all of international relations, your opponents can use that to create perpetual stalemate through negotiations that accomplish nothing. This kind of offer is the way to end that.
The problem, of course, is that I don't believe that what is therefore starting is nearly as cut-and-dried as some people think it is. At one point, WWI was predicted to last a few weeks.