There will never be "normal" relations for Israel with the Arab countries for the simple reason that Islam dominated the country at different periods of time and many yearn to return to those periods. More Palestinian laborers, more trade, freer travel, technical help, joint projects in water are all possible tho. What is desireable is reducing the simmering anger and violence that has characterized the region for decades. This is possible, and indeed, stopping the settlement activity would be a good gesture, because uncontinued it eats into the eventual Palestinian state and will cause permanent resentment and new hostilities. Very simple. Freeze, or burn..
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Initial report of stabbing attack in South Hebron Hills (Haaretz)
from the article: Egypt: Settlement freeze first step to normal Israel-Arab ties