This is Bush's variant of "speak softly and carry a big stick." Bush doesn't go into any great length as to what exactly he will do to you if he decides you are unredeemable evil. And unlike Clinton, he doesn't say "pretty please with sugar on top...". He just says "you're over the line ... step back".
I don't think that Arafat will step back. And I am confident he will soon no longer rule the PLO as a result. Likely Israel will get the credit. Bush doesn't have a big ego over just how justice gets delivered. He'll just do what he can to see that it does.
The big question, on other threads, is how much of the rest of the Middle East (such as Syria) will step too far over the line, to demand their own justice. This could get ugly.
MM