Jacob and MIB (who or whatever they are) have been locked in battle. I looks as if, Jacob has been using the time properties of the Island to play with the variables (people brought to the Island) over and over again in a belief that by finding the correct combination and changing different circumstances he can change the outcome. However, it would appear from his conversation with MIB and from what Faraday said, nothing can ever be changed. There are in a closed time loop universe. MIB is tired of the game and is likely an unwilling participant of Jacob's plan and is looking for a loophole so he can kill him and end all of this. The problem is both him and Jacob know that even with the Island's ability to allow time travel they are still in a closed loop which, despite the best efforts of Jacob, absolutely cannot be changed. Since Jacob knows the outcome, he also knows that MIB cannot kill him. The Lo! sties represent Jacob's final effort to somehow change the loop, they also inadvertently provide MIB with his loophole (and ultimately with a solution for Jacob)
So let’s get to brass tacks: The incident probably always happened, but Faraday introduces the bomb this go around. When Juliet hit that bomb in 1977 I believe at the same time someone turned that donkey wheel at very moment the bomb went off (Eloise Hawking perhaps). Or the release of the energy itself caused the island to shift through time. Notice they are showing us tow outcomes as both actually did happen. The time shift at the moment of detonation caused a irreversible paradox where the Island and the people on it shifted to another time and paradoxically at the very same moment Jughead blew up, destroyed the Island and it sunk to the bottom of the sea. Because the island is now both destroyed and still existing (because of the time flash) it can no longer flash to a different time in the closed MLT universe (because of the paradox) and therefore time shifts into a sideways ALT time loop parallel universe. Everyone who shifted with the Island now finds th! emselves in the flash sideways ALT timeline universe and they can never go back to the MTL original universe timeline because the Island is no more and they no longer are alive. Those left on the Island when it flashed realize they are now in the wrong universe, additionally they also realize that the paradox that was created will eventually destroy both universes if the island (which Eloise has said can move through time and space) is shifted back to the MLT universe. Thus the pushing of the button was to release the buildup of energy to keep the Island from flashing through time and possibly moving back into its correct universe.
The problem is now how to safely converge the ALT timeline universe with the MLT timeline universe without destroying the both of the universes. And doing all that while also stopping what was to occur in the MLT timeline that Jacob was working on. The best plan is to bring the people from Oceanic 815 (in this new parallel universe) who caused the incident (in the MLT timeline) in the first place and figure out a way to fix both universes (so begins season 1-4). Since these individuals are from an alternate universe created by the paradox noted above, Jacob can use them to fix the closed loop MLT universe (since they are not part of it and subject to its rules). Additionally, MIB can utilize them to kill Jacob, since the rules of the closed universe loop they were in no longer apply in this ALT parallel universe. Both of the universes are connected and one affects the other as we will see bit by bit. Desmond is special because he can mind travel to both univers! es. Just some food for thought..