It was supposed to be a defining moment for the world's largest stateless ethnic group. But dreams of an independent Kurdistan now appear to be in tatters.

Rewind one month and Iraq's Kurdistan Regional Government (KRG), was full of confidence. It had just held an independence referendum that saw more than 92 percent of Kurds vote in favor of officially separating from the central Iraqi government.

The vote was widely opposed both in Baghdad and by most international observers.

The United States warned it could fracture the fragile Washington-backed alliance between the Iraqis, Kurds, and Turks, not to mention a host of other nations, that had enjoyed success in its campaign against ISIS.

Both the Iraqis and the Kurds have been armed and funded by the U.S. And despite Washington's misgivings, the KRG felt that the historical support from the U.S. — as well as an international community that had treated it as a de facto state in its own right — would eclipse any short-term fears about regional stability.

Spirits were sky high, with the streets of the regional capital Irbil draped in Kurdish flags.

"We may face hardship but we will overcome," Iraqi Kurdish leader Masoud Barzani said in a televised address after the Sept. 25 vote. He called on world powers "to respect the will of millions of people" who voted in the ballot.

This bullishness appears to have been a severe miscalculation, according to Renad Mansour, a research fellow at Chatham House, a London-based think tank.

"It has backfired on the Kurdish leadership, who are in a crisis situation right now," he said.

Even before one vote was cast, Iraqi Prime Minister Haider al-Abadi cautioned that if the referendum went ahead he could pursue military action. The White House and Turkey also counseled Kurdish officials in Irbil to at least postpone the referendum.

The Iraqi leader made good on his threat earlier this month, launching a campaign to recapture disputed territory that was held by Kurdish forces but that fell outside the officially recognized semi-autonomous region governed by the KRG.

Kurds celebrate the results of the independence referendum in Irbil on Sept. 26. Mohamed Messara / EPA

Along with Iran-backed Shiite militias, Iraqi forces pushed back the Kurdish peshmerga, whose name means "those who face death." Their most significant gain was the oil-rich and strategically important city of Kirkuk, which is claimed by both sides.

On Friday, the two sides agreed to a cease-fire, according to the media office of the anti-ISIS coalition. But the Kurdish leadership has been left divided and in disarray.

Even if the dust does in fact settle, most Kurds acknowledge that their bid for independence was at the very least mistimed and misjudged, according to Mansour at Chatham House. "They misplayed their hand," he said.

Al-Abadi, the Iraqi prime minister, needed to act against the Kurds for several reasons, according to analysts.

He has defined his leadership by the strength of his security forces, making wins against ISIS where his predecessor failed and positing himself as a counterweight to Iran. He didn't want to be seen as the Iraqi leader who let Kurdistan break away and form its own state.

Nevertheless, some experts say that it's not in al-Abadi's interests to push too hard.

Map of Iraqi Kurdistan.

Squeezing the Kurds too much could turn an armed standoff into an all-out ethnic conflict between two U.S.-armed forces, according to Yasir Kuoti, a research fellow at the Middle East Research Institute, a Irbil-based non-profit organization.

"Given these developments, the only sensible way forward is for Baghdad and Irbil to make negotiations a priority," Kuoti wrote this week.

"Playing the blame game now is not only frustrating, but also impeding to progress," he added. "Therefore, it is more constructive that Baghdad and Irbil take steps to calm down emotions and pave the path for meaningful dialogue."

With tensions still high, it's too early to say how these negotiations might progress, let alone what they might achieve.

One option still open to the Kurds is that their political parties could participate in the Iraqi government elections set for next May. Though small, they could act as kingmakers for any future prime minister and use this influence to negotiate a deal on their own territory, Mansour said.

That said, it's also possible that the Kurds remain divided following the referendum backlash, meaning that bartering on their future would be less likely.

As Mansour put it, with the conflict still in flux, "it's very hard to say at the moment."