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I agree that he should have withdrawn the claim, but I thought there was a potential upside to his (still wrong) course of action, namely a clear rejection of the claim by the courts.
The "improper" claim of state secrets has been made to shield the executive from judicial review and accountability. As I understand it, the Obama DOJ didn't have to make claim that the Bush DOJ made; it could have made a proper claim of state secrets, which would have allowed the suit to go forward (which is where we are now because of the appeals court ruling).
A clear rejection by the court happened only because the improper claim was made in the first place. It wasn't necessary to bring about a "good end;" the Obama DOJ could have done that on its own. No amount of wishful, magical, or pragmatic thinking can excuse that.