Once again, Lebanon is on the brink of major social and political upheaval. Rumours of an impending armed clash between Hezbollah and the pro-western governing coalition have spread like wildfire among the Lebanese people, who are hoarding food and arms in anticipation of the worst.

On the surface of it, the current crisis revolves around a United Nations tribunal set up to investigate the 2005 assassination of prime minister Rafik Hariri in 2005. An indictment from the tribunal is imminent; there is increasing evidence that the tribunal will accuse members of Hezbollah, the Shia-dominated resistance movement, as having played a central role in the assassination. If true, this could provide the spark that ignites the next confrontation.

Hassan Nasrallah, the leader of Hezbollah, has repeatedly dismissed the tribunal as an "American-Israeli" tool intended to incite sectarian strife in Lebanon. He has warned that the looming indictment will be an act of war against his group. He has demanded that the Lebanese government – led by Saad Hariri, the son of the late prime minister – distance itself from the UN tribunal and renounce it before the indictment is released.

On a deeper level, the standoff reflects a broader institutional crisis. Lebanon's institutions are dysfunctional and defective; they have failed dismally to mediate conflict among rival groups, as well as to integrate rising social forces into the political process. The Hariri tribunal is a case in point. Lebanon's three major institutions, the presidency, the cabinet and the parliament, are paralysed, unable to solve the impending crisis.

The recent impasse is mired by a series of "false witnesses" linked to the UN probe into Hariri's killing. Consequently, all eyes are now on Saudi Arabia and Syria, the two regional patrons of the rival Lebanese camps. They have attempted for months now to broker a settlement (with little success so far) that nullifies the tribunal and thus averts bloodshed. On the other hand, the United States has reportedly impressed on its allies the need to show resolve in the face of Hezbollah's threats and support the tribunal.

Sadly, Lebanon's leaders have forsaken their responsibility and have resigned themselves to the belief that the resolution of the tribunal problem lies in the Saudi-Syrian initiative. Lebanon's national unity government has proven to be an unworkable mixture of ministers from across the political spectrum. An abject failure, this multi-coloured cabinet has stalled all efforts to pass crucial policies.

Institutionally, Lebanon is a failed state. The political class has consciously and systemically used identity-politics to advance its material interests and undermine institution-building and nation-building; in moments of duress it has called on foreign powers to sustain its dominance.

Far from being sectarian-based or driven, the power struggle in Lebanon is multi-layered and complex. Sectarianism is used and abused to mask vested interests and differences.

On one level, the political class is divided along two camps: Lebanon-first v Arab-Islamic. The Lebanon-first constituency advocates a pro-western foreign policy and active neutrality in the Arab-Israeli conflict. In contrast, the Arab-Islamic constituency supports al-muqawama or "the resistance" against Israel and the Iranian-Syrian front.

On another level, the power struggle conceals changes in the demographics of Lebanese society which have not been given their equal representation in the political system. While Maronites and Sunnis formally control executive power, the rising Shia community, disfranchised historically, feels under-represented and politically marginalised.

Moreover, Lebanon is a battleground for a fierce confrontation between the US and its regional allies, on the one hand, and Iran-Syria and their local friends, on the other. A bitter struggle has exacted a heavy toll on the stability and security of the tiny country and paralysed its institutions further.

In a way, the fight over the UN tribunal is an extension of the US-Iranian rivalry. Hezbollah fears the tribunal is politicised, a tool of US policy, designed to weaken and destroy the resistance against Israel. The Obama administration hopes that the indictment of Hezbollah will expose the warts of Iran and Syria and their surrogates in Lebanon and hammer a deadly nail in the moral standing of Hezbollah throughout the region. What US officials neglect is the effects of such an indictment on social harmony and peace in Lebanon.

Lebanon faces a stark choice between justice and stability. There is a real danger that justice is no longer achievable and that the costs are exuberant. Regardless of the evidence marshalled by the tribunal, thedecision will likely pour gasoline on a raging fire and reinforce the two camps' opposing narratives: Hezbollah's cohorts will view it as a conspiracy, while for Hariri's supporters, conclusive evidence of the guilt of the Iranian-Syrian camp.

Hariri says that he recognises the fears of the politicisation of the tribunal and the potential implications of an indictment of Hezbollah. On the other hand, Hariri has asserted that he cannot renounce the tribunal because he wants the assassins of his father to be brought to justice, and because he possesses no authority over the UN tribunal. Hariri is also under pressure by the Americans to buckle up and back the tribunal.

No matter if Lebanon can weather the gathering storm, this will not be the first crisis, or the last. The country's dilemma is structural; as long as Lebanon's political class substitutes identity-politics for formal institutions, it will continue to be politically unstable. As long as Lebanon's leaders rely on foreign intervention to tip the internal balance of power in their favour, they will remain passive bystanders in determining their country's future.