The Israeli government has gone the way of brute force, of which it has a near monopoly and has tacitly approved Jewish settlements to create facts on the ground that turn this into a completely zero-sum contest.
For its part the Palestinians are a basket case of corruption and violence who refuse to accept the results of successive wars they've lost or conduct themselves rationally to find a civilized, acceptable end-state. 

Extremists on both sides are now clearly in charge and the conflict will continue. With the US as Israel's primary benefactor and military supporter, this will continue to be a never-ending recruiting tool for anti-western Islamists.