There are four fundamental dynamics to Israel's conflict with its neighbors.
The Jews have a sovereign state. The Palestinians don't. The West Bank Palestinians are occupied by Israel.
Significant numbers of Palestinians will never accept Jewish sovereignty and will act against it, including by violence.
Significant numbers of Arabs and Muslims will never accept Jewish sovereignty and will act against it.
Noticeable numbers of Westerners will never accept Jewish sovereignty and will agitate against it.
One can debate each and every one of the points endlessly; indeed, once could restrict oneself to dispassionate and intelligent discussion, and still keep at it indefinitely. This would result in nuanced and finely differentiated depictions; the fundamentals would still be the same four dynamics described above.
There is no way to achieve peace in our generation. No matter what agreements are signed and what changes made on the ground, there will remain significant numbers of Palestinians, Arabs, and Muslims who will continue to wield violence against Jewish sovereignty, and noticeable numbers of Westerners to support and aid them.
Seen through soulless logic, the destruction of Jewish Israel would enable the peace of the graveyard. Likewise, were the implacable enemies of Jewish sovereignty to change their minds, peace would be possible. Seen in the historical perspective of centuries and millennia, either outcome might happen. Not anytime soon, though.
In October 1973, according to many publications, there was a moment when some Israeli leaders feared the military actions of Egypt and Syria might destroy Israel, and they mooted the use of nuclear weapons. There has never again been a concerted military action that could destroy Israel, and there's unlikely ever to be one for as long as Israel is perceived to have a strong nuclear option. Violence against Israel since 1973 has always been an attempt to break the Jews' willpower. The growing attempts to isolate Israel and deligitimize it have the same goal, of forcing the Jews to give up their obstinate determination to have sovereignty.
Compared to long periods of Jewish history, deligitimization is a reasonable problem to have. For that matter, deligitimization compounded with a low level of violence isn't an existential threat, either. Yet Jews haven't become one of history's oldest living nations by passively suffering circumstances. They have always tried to improve their lot, often with surprising success; Zionism is merely one of the more spectacular improvements. The Zionist tradition of activism requires we confront the present threat, rather than wait. The way forward is to disable the weapons of our enemies. Since the single most potent weapon in their arsenal is our occupation of the Palestinians, we must do as much as we reasonably can to end it.
Ending the occupation as a maneuver in an ongoing conflict is not the same as making peace. Making peace requires that all side to the conflict accept mutually agreed terms. There's a reason this hasn't yet happened, namely that the two sides cannot agree; even if they could, however, no Palestinian government could reconcile all Palestinians, Arabs and Muslims to Jewish sovereignty, nor convince the western supporters of ongoing violence to desist from aiding and abetting it. The aim of ending the occupation is to severely weaken the enemies of Jewish sovereignty by reducing the wind which currently blows in their sails.
As recently as 2006, a majority of Israel's voters felt it would be possible to end the occupation through the program Ehud Olmert called Hitkansut, which broadly meant Israel would move back to the line of the security barrier, and allow the Palestinians to do their thing beyond it. As the elections of that Spring approached, Olmert told us explicitly that was his plan, and he won the election. Since then however we have seen a number of unfortunate developments. First, the result of Israel's unilateral retreat from Southern Lebanon in 2000 proved to be war in Summer 2006. Second, the United Nation Security Council Decision 1701 - as solemn a guarantee as the international community can give - which promised Hizballah would not be re-armed, has proved totally useless. Third, the Palestinian response to Israel's evacuation of Gaza was to elect Hamas and go back to war with Israel. Fourth, the international community's implied commitment to support Israel when it disbands settlements and evacuates Palestinian territory proved worthless. Fifth - and perhaps most serious of all - the decision of the Obama Administration to renege in 2009 on public commitments made by the President of the United States and ratified by both Chambers of the House in 2004, in return for Israel's evacuation of Gaza, demonstrated that even the United States cannot be trusted. Finally, we recently learned to our horror that regime change in Egypt may well mean harm to the peace we made with that country - not its president - 30 years ago. So even internationally acclaimed treaties only have temporary value.
In spite of the events of 2006-2011, the need to end the occupation or at very least significantly limit it is still there. Moreover, there are still measures Israel can make to promote this goal.
1. Stop building in settlements that will someday be dismantled or transferred to Palestinian sovereignty. I'm not drawing a line, but Israel needs to.
2. Pass a law that enables Israeli citizens of the settlements who wish to move back inside the line to do so without losing the value of their homes (significant numbers of settlers are eager to move but can't).
3. Have an election where the question of dismantling settlements is clearly on the agenda. I'm reasonably certain whichever party suggests this in an intelligent way will win, but let's have the election and see.
4. Dismantle those settlements.
5. Demand of the United States and Europe that they figure out a way to assuage our fears of relinquishing military control of most of the West Bank so as to enable the emergence of a sovereign Palestinian state. This state will not be at peace with Israel, for the above reasons, nor will it have the borders the so-called moderate Palestinians insist they need. Still, let's change the dynamic. Rather than deligitimizing Israel for obstructing Palestinian independence, let's frame the discussion as a border conflict between two states. And let's put the responsibility for calm on the NATO nations. You want an independent Palestine? So do we. So you disarm it and keep it harmless.
6. Plan and apply practical policies to detach Palestinians from Israel: demand of them that they use their own currency rather than the Shekel, that they build an economy that doesn't trade 80-plus percent of its goods with Israel, and so on.
7. Promote the well-being of the Palestinians in East Jerusalem. Already today most of them prefer Israeli rule, and growing numbers of them are acquiring Israeli citizenship to replace the permanent residence status they already have. If the people of Jerusalem are Israeli citizens, it's hard to see how the land they live on can be defined as occupied. Concurrently, change the Israeli law that defines Jerusalem's municipal lines so that the 60,000 Palestinians beyond the security barrier (mostly in Kfar Akeb and Shuafat) are part of the West Bank, not Israel. Essentially, this means division of Jerusalem though not on the line the Palestinians hope for. Yet it would change the dynamic of the discussion: Israel would be able to demonstrate it's willingness even to hand over sections of Jerusalem.
So far I have spoken only of Israel's needs and interests. Ending the occupation, however, would be the right thing not only because it's good for Israel. The Palestinians really don't have their own state: they should. It will admittedly not be the one they want - this is true in any scenario - but they should have a state of their own. Zionism is about correcting the existence of the Jews, not preventing Palestinian's national existence. The two nations cannot each have their entire homeland for themselves, but they should each have part. The line of division will reflect more than a century of actions taken by each side, and the Palestinians will end up with the smaller part as a result of their actions; they should however at least have that part.