A treaty would have to be drawn up for the canal construction, and for this the Panamanian rebels unwisely placed their trust in the cunning Frenchman, Philippe Buneau Varilla. Varilla had served as chief engineer for the French Canal construction effort, and had much to gain from a deal with the Americans that would help regain some of the millions lost by the bankrupt canal company as well as his own holdings in it if the United States agreed to purchase the French Canal rights.

The Panamanian revolutionaries appointed Buneau Varilla as plenipotentiary minister and sent him to Washington to negotiate. Soon realizing their mistake, the Panamanian revolutionaries despatched three plenipotentiary ministers by steamer to New York. The treaty was so advantageous to both the United States and Buneau Varilla, that the latter found a way to delay the three Panamanian diplomats in the Waldorf Astoria Hotel in New York until after the Hay-Buneau Varilla Treaty was signed, stamped, and sealed on November 18, 1903.

Under the treaties, the United States purchased all rights and properties of the old French canal company in Panama for $40 million, a true fortune for the day. Second, and more ominously, Buneau Varilla granted the United States a 10-mile wide, 50-mile long strip of land in Panama to be used "as if sovereign" and "in perpetuity." According to Buneau Varilla himself, when the revolutionary leader and later first President of Panama, Manuel Amador Guerrero, heard the terms of the treaty, he looked as though he was about to faint. But as the story would be told later in Panama, the Panamanians in Washington had been by stages incredulous, indignant, and then livid with rage. One rebel leader is said to have hit Bunau Varilla across the face on the quay.

In Panamanian schools, children soon learn to identify Bunau Varilla as the man who sold Panama "down the river" The unfavorable terms of the treaty constituted a thorn in the side of relations between the United States and Panama that would not begin to be solved until 1964, when riots led to 23 Panamanian dead and several U.S. wounded. Panama's President Roberto F. Chiari broke off diplomatic relations with the United States, and U.S. President Lyndon B. Johnson, realizing the seriousness of the matter, issued instructions for the beginning of earnest negotiations to replace the 1903 treaty. This finally came to fruition after 13 years of thorny, difficult negotiations that ended on September 7, 1977, with the signing of the Torrijos-Carter Treaties. The treaties promised full transfer of the Canal to Panama and the full withdrawal of U.S. military bases and troops from Panama within a 20-year term. In essence, it ended the clause of "perpetuity" of the 1903 treaty and permitted improved relations between the two countries. When one says "treaties" versus "treaty" that is because at the last moment the United States added a second treaty called the Neutrality Treaty that grants the United States the unilateral right to intervene in Panama if it deems the Canal is in imminent danger of being closed or otherwise seriously threatened. That was a second thorn in the side of Panamanians, but they had to accept it if they wanted the Torrijos-Carter Treaty signed, so they did.