I think the selection of China was an optimistic choice, a way of recognizing China's moves toward being more open and free, and perhaps a way of prompting them to continue down that road.
But the committee didn't realize how deeply rooted the Chinese instinct is to impose control and secrecy when they perceive a threat. Rather than the Olympics being an impetus to discuss peace-making options with Tibet, they became an internal justification for squashing anything that subverted the face China wishes to show the world.
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