**Ongoing conflict dynamics and a limited June 2026 framework agreement explain the strong trader consensus against full normalization before 2027.** In late June, Israel and Lebanon signed a U.S.-mediated trilateral framework in Washington that established mutual recognition of sovereignty and a sequenced process for Israeli withdrawals from limited “pilot zones” in southern Lebanon in exchange for Lebanese Armed Forces deployment and verified Hezbollah disarmament. Officials on all sides described it explicitly as an initial step toward ending hostilities rather than a comprehensive peace treaty or normalization of diplomatic relations. Israel has retained a security buffer zone pending Hezbollah’s disarmament, while Hezbollah leaders rejected the deal as undermining sovereignty and vowed continued resistance. By August 2026, implementation has stalled amid repeated Israeli strikes in southern Lebanon, disputes over Lebanese army progress in the pilot areas, and Hezbollah’s refusal to relinquish weapons before a full withdrawal. Lebanon’s domestic constraints, including Hezbollah’s political and military influence, further limit rapid movement toward formal diplomatic ties. Historical precedent shows normalization typically requires resolution of core security issues and often broader regional conditions, none of which have advanced sufficiently in the remaining months before 2027. These verified developments—phased security arrangements without immediate diplomatic recognition, persistent enforcement challenges, and entrenched opposition—support the market’s 90% implied probability that full normalization will not occur by the deadline.