Dominant theories fail to explain the use of terror during the Second Palestinian Intifada. Notably, they fail to explain Hamas’s abandonment of suicide attacks by 2005. We classified the universe of fatalities on both sides and examined the conflict’s patterns of lethal violence. Our analysis of fatality ratios and rates of change by fatality category supports a dual-arena theory of terror. Noting a rapid increase of indiscriminate Israeli civilian deaths and a relative evening out within this category in the conflict’s initial phase, we demonstrate that externally Hamas aimed to improve the balance of forces to compel Israel to negotiate on equal terms using the “out-suffering” mechanism. Internally, Hamas used terror to build confrontational capacity by attracting Palestinian factions to a resistance pole and isolating conciliatory elites. When their continued deployment became too costly relative to emerging options, the campaign was swiftly called off. In the end, while based on strategic calculations, Hamas’s use of terror proved to be a failure.