The crazy thing is, the Israelis really could have peace if they wanted it. They could pull out of the West Bank totally, and let them be a normal state without any of the unacceptable provisos like retaining control of WB water and air space. Not that I agree with this solution, but it would pretty much stop attacks. Why don't they do this? My guesses:

1. A good portion of the population is religious loonies who believe God gave them ALL of Palestine.
2. They need or think they need the water under the West Bank.
3. For most of the atheist Israelis, although they may not be religious in the traditional sense, their Zionism is religious in its irrationality and absolutism.
4. Their racism (well, Zionism is racism of course).
5. Part of the Israelis' identity is about fighting their enemies (this is not true in the diaspora, part, if not most of our identity rests on thinking everybody hating us, but not fighting back).