They know that the Bush tax cuts for the rich are going to end. There is no way they can stop it, since all of the Bush tax cuts will end automatically if NOTHING is done at all. The only thing they could do about tax cuts is deny extending them for those making less than $250,000 a year. But while they have that power, doing that would not be politically feasible -- and could cost them the House of Representatives in 2014. So, finding themselves unable to keep the tax cuts for their rich benefactors, the GOP is magnanimously offering to let taxes for the rich go up if the Democrats will "compromise" (surrender).
What do they want for their going along with something they can't prevent (and is very popular with the electorate)? Republican Senator Graham said he wanted cuts in entitlements. He wants to cut benefits and raise the age for both Social Security and Medicare. Other Republicans want to cut food stamps, unemployment benefits, school lunch programs for poor children, funds for education, funds to clean up the environment, and myriad other things that help ordinary Americans. In other words, they want Democrats to throw children, the poor, the elderly, the sick, the unemployed, workers, the middle class -- everyone but the military-industrial complex -- under the bus, in exchange for agreeing to something the GOP can't prevent anyway.
That's not a good deal, and it's certainly no "grand bargain". That's just giving in to the insane GOP agenda -- even though they lost the election and have no leverage (except to try to scare people with talk of a "fiscal cliff"). President Obama and the Democrats need to stand their ground, and if necessary, let the tax cuts end and the budget cuts happen. As Krugman said, no deal is much better than the bad deal the GOP is offering.