Israel has tried to make peace.
The left in Israel has, the right in Israel has opposed every move toward peace that Israel has ever been faced with.
Read the Hamas Charter, specifically article 13.
In it, they say that they WILL NOT talk to or make peace with Israel, nor will they participate in any other talks regarding Israel.
They also call for and state as their goal the total destruction of Israel.
The Israeli party Likud passed a resolution in 2002 saying that there should never be a Palestinian state west of the Jordan river (all Palestinian territory is west of the Jordan river, so it shouldn't be too hard to read between the lines there). This is not functionally much different than Palestinian extremists failing to recognize Israel's right to exist and a full view of the mideast conflict must recognize that on Israel's side there is also a disruptive minority that wants all the Palestinian territory just as there are Palestinian extremists who want Israeli territory.
The Government of Israel flatly rejects the establishment of a Palestinian Arab state west of the Jordan river.
The Palestinians can run their lives freely in the framework of self-rule, but not as an independent and sovereign state.
So tell me, how is Israel supposed to negotiate with or compromise with them?
Tell me how to negotiate with Israelis while you are at it. There is a significant portion of them who do not want the conflict to end so that they can pursue their territorial aims.
Exactly HOW is Israel supposed to compromise?
Accept the Pan-Arab proposal of 2002
for starters. They have long resisted parallelism
in this process even though it's the fastest way to their own security.
Their right has preferred sequentialism, and any time there were terror attacks they just postponed negotiations to recognize a Palestinian state. They'd insist on a "period of calm" and any attack on them served to reduce international pressure on them to continue with the process.
Ok, so now we've waited for Arafat to die, we've waited for the intifada to end, and for once Palestinians have a moderate and sensible President in Abbas. Israel has already accepted that a Palestinian state is a fait accompli
, an eventuality
, so has the United States when Bush was the first president to call for the creation of a Palestinian state
The whole world recognizes the basic framework of the agreement, which is a return to 1967 borders with a "fair and equitable" territorial exchange where that is not practical due to Israeli settlements. Six years ago, they were still fighting against any eventual Palestinian state but some of the hardest heads out there have recognized that this is an eventuality now.
The Arab world offered full normalization of relations with Israel for it, and it's foolish of Israel to put this off because of Hamas. In the last decade, the best thing Israel has done for their security was their 2005 disengagement.
Putting the Palestinians on the immediate path for statehood would pull the rug out from under Hamas, and give the Palestinians a chance at unified moderate leadership under Abbas. Arab states have agreed to normalize relations with Israel in exchange for concessions that Israel has largely already agreed to in principle and that would take even more of the wind out of the sails of Palestinian extremists.
Further disengagement and swifter progress toward a two-state is the best thing Israel can do. But there is an election coming up, and the more extreme right of Israeli politics is mounting a tough challenge to the incumbents, forcing more hawkishness out of everyone while they prove their security credentials.
It's a damn shame, because these displays don't increase their security and they are the closest they've ever been to reaching the "painful concessions" 
they have long known they need to make.
Palestinian statehood is the best thing they can do for their own security and would reduce the Palestinian extremists to the very fringe, denying them recruits and financial support.
Ariel Sharon reached this conclusion himself late in life, and the best thing he ever did for Israel was to decide to simply disengage and the best thing that Israel can do now is to continue to simply disengage and grant Palestinian sovereignty. Granting Palestinian sovereignty doesn't represent a strategic threat to Israel but would remove a significant gripe on the part of the Palestinians.
Unless they commit wholesale ethnic cleansing of the territories, they aren't going to rid themselves of Palestinian extremists through military means. Palestinian statehood wouldn't immediately eliminate them either, but if history is any indication it would be the most effective way to do so. The Palestinians have a legitimate qualm with Israel that even nations like the United States and Israel itself recognizes and Israel should do the right thing in regard to those legitimate territorial qualms regardless of what anyone else is doing, and the good news is that doing the right thing there is the most likely way that Palestinian extremism will be defeated.