This is a complicated issues. Let me mention just a few of the issues.
1. Israelis are divided on how to best resolve the issue. Most are in favor of a two state solution, but the popularity of a one state solution is growing, and is apparent among the Likud party.
2. Israel was firmly in favor of a two state solution at one time. In 2000 the Palestinians were offered 95% of what they wanted, including East Jerusalem -- an incredible sacrifice by Israel for the sake of peace. But ARAFAT WALKED OUT, showing that the Palestinian leadership was not truly interested in a two state solution. At that point, most Israelis became disillusioned with the peace process --why bother-- and a one state solution began looking more realistic.
3. This is why today there is little chance of a two state solution -- essentially the leadership of neither side wants it.
4. Israel is no angel -- I'll be the first to admit that sometimes Israel royally ticks me off. Yet what Israel does is no comparison to the terrorism committed in the name of destroying the State of Israel. Much of the aid money to the Palestinians inevitably goes to support terrorist groups and acts.
5. There is a concerted effort not only by Muslims, but also by the political left to delegitimize Israel and Jewish connection to the land. The most recent instance was UNESCO's decision that the Temple Mount had no connection to Judaism.
ALL THIS TO SAY that everyone wants peace -- without the other side getting what they want.