@oralloy,
Israel and the Palestinians both need to have an incentive to accept a Peace deal. If you give either Israel or the Palestinians a situation where they are better off with Peace then with violence, then they will choose peace.
Right now, the Palestinians aren't being offered a viable state or a real chance at a secure existence with a strong economy. If you offer them this, and make it clear that war will take this away... then of course they will choose what is advantageous to them.
(You will claim that they have been offered this, but you aren't being honest. A viable state that can have a good economy needs to be contiguous, it needs to have access to resources and it needs to be able to control its own borders. This has never been offered.)
Right now the Israelis have no incentive to have peace either. This is because the United States is absorbing all of the consequences of the occupation. They aren't paying very much for the occupation and they are being led to believe that if they just hold off (with a few deaths from rockets) that they will be given all of the land.
In my opinion the way we fix this, so that both sides have more to gain by peace, and more to lose by violence is simple.
1) We stop giving Israel the political cover and put strings on our military and economic help unless they truly commit to giving the Palestinians a real state; that is contiguous, has a share of the resources and has control of their own economy and borders.
(again I will point out that Israel has never offered a contiguous state to the Palestinians and that this is really important)
2) We give Palestinians such a state contingent on them renouncing violence and accepting Israels right to exist.
I understand, Oralloy, that you think that Israel is always right and never does anything wrong. This makes it a little difficult for you to be balanced in your understanding of the situation.
I want to point out this imbalance is exactly the problem and the reason that we still haven't reached a peace agreement after all of these years.