Dave, I believe peace is possible although its birth can be painful and messy, with a lot of huffing and puffing required (volunteers to deliver the slap on the tuchus are easy to find). Neither side wants to make concessions when they feel threatened or weak, and both sides shy off from concessions when they feel they are in a position of relative strength. I agree that outside sympathizers encouraging radical rejectionism help noone. This may be one confict that you can't back into with both sides equally unhappy but "going along"--so far, as in Oslo, Wye Agreements, Road Map this has led to resentments, double-talk, and bad faith. I would guess that giving both sides multiple and overlappoing access to prized assets (religious, national, territorial) might be a basis to moving forward.
AG examines probes deal by new police chief Hirsch's security firm (Haaretz)
from the article: Hamas denies Meshal said group would consider recognizing Israel