David Cameron’s renegotiation of the terms of Britain’s membership in the European Union has been derided as a gigantic missed opportunity that achieved very little. But this is only half right.

It is true that the U.K. prime minister dropped some of his most eye-catching early demands, including an opt-out from EU social and employment law, even before the process started.

Much of the 16-page draft deal circulated by European Council President Donald Tusk on Tuesday simply reiterates existing rights; there is nothing to which Mr. Cameron has agreed that requires a change in the EU treaties and little that even requires changes in secondary legislation.

The section on boosting EU competitiveness rehashes initiatives already under way; the proposal for a new mechanism to allow national parliaments to block legislation is too complicated to be workable. The planned new safeguards for non-eurozone members are a nonsolution to a largely theoretical problem, a straw man talked up by both sides to lend excitement to the process, according to a senior EU official.

Meanwhile, the proposed “emergency brake” allowing the U.K. government to deny EU migrants full access to certain welfare payments for up to four years falls short of what Mr. Cameron originally demanded.

And yet, viewed through European eyes, what Mr. Cameron has negotiated is a very big deal indeed.

In particular, the decision to allow the U.K. to restrict welfare to migrants is a substantial concession since it allows the government to introduce blatant discrimination against EU citizens, effectively requiring them to pay a higher tax rate for the same job.

Ever since Mr. Cameron first made this demand in November 2014, EU officials have warned that it was politically and legally impossible. Indeed, there is no guarantee that EU leaders or the European Parliament will give their necessary blessing to the plan.

The EU has tried to sugar the pill: The emergency brake will apply only to new arrivals whose access to benefits will be increased over the four years; the brake will also be time limited, although for how long will be up to European leaders to decide at the summit on Feb. 18-19.

The European Commission has cleverly presented the emergency brake as a permissible measure to address the unintended consequences of the UK’s decision not to restrict the right of Central and Eastern Europeans to move to Britain for seven years after they joined the EU. This can’t hide the fact, however, that the grounds for granting this emergency brake are flimsy.

After all, it is hard for the U.K. to maintain that EU migration is putting its public services under intolerable strain when it continues to allow high levels of migration from outside the EU over which it has total control.

Nor is it clear how restricting welfare will ease the pressure on public services given that few economists believe this will have any impact on migration levels. And the U.K. can hardly claim that migration is putting its public finances under strain when studies show that migrants are net contributors to the U.K. budget.

Many in Brussels and elsewhere in the EU are deeply uncomfortable at what Mr. Cameron is being offered and the precedent it sets. The fact that the EU’s leadership is prepared to contemplate even a temporary breach of a core principle of the single free market is evidence of how seriously they take the risk of Brexit and the damage this might inflict on the rest of Europe.

Why does Mr. Cameron not get more credit at home for this achievement? One reason may be a lack of appreciation of what membership in a single market entails, resulting in an exaggerated view of what his renegotiation could possibly have delivered. There is more than a whiff of imperial nostalgia about British euroskepticism, a yearning for the time when the U.K. parliament could lay down the rules for a quarter of the world.

But in a single market comprising 28 sovereign states, one country can’t unilaterally pick and choose which rules to respect and which to discard while continuing to enjoy untrammeled access to the markets of the other 27.

Many may also have underestimated the extent to which the single market was the product of decades of negotiation and compromise, a complex web of reciprocal rights and responsibilities.

When Margaret Thatcher helped launch it in 1986, she set in train a slow-motion—admittedly, extremely slow-motion—revolution in Europe that is forcing once largely closed, highly protectionist economies to adapt to a world of free movement of goods, capital, labor and services.

The U.K. has been arguably the biggest beneficiary of these freedoms because it is the most open. But rules that the U.K. finds onerous may have been an essential quid pro quo to persuade others to accept the political, economic and social risks of this radical agenda.

What Mr. Cameron clearly recognized early in his renegotiation is that either you are in the single market or you are not. This is essentially the choice that lies at the heart of the referendum.

Like Mr. Cameron, British business and the City of London have clearly concluded that the benefits of the single market outweigh its burdens, that it is better to have some say over the rules of the U.K.’s largest export market than none at all. Now they will have to persuade the country.