First of all, Israel put itself into the quagmire by treating the Arab majority (unfortunately, in this statist world only majorities rights count) within its borders (even pre-1948) like sh*t. If even a sheep-like people like Arabs where forced to counterattack like they did (not the neighbors, the individual terrorists) I’m sure that the Israeli treatment must have been horrendous. Denying any sort of guilt by Israel would be clearly propagandistic, I’m afraid. How come that up until 1947 jews and arabs managed to live peacefully while after 1947 things went crazy? (I’m not saying that creating Israel was a mistake; the way Israel behaved was the mistake).
Now, I agree that as of today, Arabs will not recognize Israel’s “right to exist” (whatever that might mean) and will happily blow themselves up (and will need to be put down individually). But people do not live of ideology. They need jobs, and if faced with the choice to, say, provide for their families or bombing Israel I’m sure that many would chose to “swallow the shame” and let Israel live.
They do not do that because Israel has no economic value to them: there is no free trade, I’m sure that capital flows are next to zero, not to speak of emigration. Israel need to change all that, and if it does, rest assure that slowly, arabs will swallow Israel’s existence and be forced, by their need to live past subsistence, to cooperate. But as things stand, Israel is valueless to them.
As for eastern Jerusalem, it is mostly Arab and that’s all I need to know. Giving it back to the Arabs would go a long way to establishing the real will of Israel to reach peace. No one(besides fundamentalists and todlers) gives a damn where did Jesus stake a crap two millennia ago : as things stand, eastern Jerusalem is arab, and need to be reverted back to the arabs. The smaller the states (half a city, in this case) the less interventionist and warfare-minded they are: of course, that would not mean there would be no violence at all.
Purely form an Israeli perspective, any other policy besides an end to Gaza strip incursions, capital flow and trade liberalization and partition of Jerusalem, would be suicidal. It’s almost like Israelis are dead set on making their country as unviable as possible.