Although I normally talk about economics and politics, I believe this foreign policy topic is important enough to dedicate a post to it.
Right now discussions are going nowhere. The Fatah, the less extreme Palestinian organization that controls the West Bank, refuses to negotiate unless Israel stops building settlements, and the Israelis have built new settlements in retaliation to Fatah going to the U.N. in a unilateral attempt to obtain statehood. Israel does not want another Palestinian state like Gaza that is hostile towards Israel.
Before we can discuss this issue, it is important to discuss the history behind it. After World War 2, Britain decided it wanted to leave what was at the time Palestine, or modern day Israel, Gaza and West Bank. It created a plan to divide it into a Jewish State and a Palestinian State.
This is a link to the 1947 U.N. partition plan.
However, the arab countries surrounding Israel did not want Israel to exist, so Egypt, Syria, Lebanon, and Iraq invaded Israel. Israel won the war and captured more land. Now, Israel had all of the land of the original partition except for Gaza which was part of Egypt, and the West bank which was part of Jordon.
After this there were other wars, all caused by neighboring Arab countries, but the next major war was the Six Day War. The Israeli's had intelligence strongly suggesting that the neighboring arab countries were going to invade them. Egypt had ordered troops to the Suez region, and had set up a blockade of the Gulf of Aquaba. It can be seen in the link below.
Instead of waiting to be attacked, Israel launched a attack against all that it perceived to be its enemies. It captured the west bank from Jordan, the Golan heights from Syria, and Gaza and the Sinai from Egypt. They were on the verge of conquering Damascus, but stopped after threats from the Soviet Union. The war weakened Arab moral and the Israeli-Palestinian conflict greatly worsened.
For decades little happened. The Palestinian Liberation Organization (PLO) launched terrorist attacks on Israel, and Israel retaliated. Finally in the Oslo agreement in 1993, the two sides recognized each other's governments. Hamas objected to the agreement and began suicide bombings.
In 2000 camp david talks began. Israel offered Gaza, much of the West bank plus extra land from the Negev desert, and contributions to a fund for Palestinian refugees. However, the Palestinians wanted all of the pre-1967 land, East Jerusalem as their capitol, and right of return, which would allow all 5 million Palestinian refugees to return to Israel, which would mean that Israel would not longer be a Jewish State. the only thing they would give Israel is the Jewish quarter of Jerusalem. The Palestinians ended the talks.
In 2000, the second intifada started. Hamas, the People's Liberation Front for Palestine (PFLP) and other extremist Palestinian groups started suicide bombing Israeli civilians. Both Hamas and the Peoples Liberation Front for Palestine are considered terrorist groups by the United States. Israel responded with jet fighters, solders, bombers and artillery. Israel ended up killing many terrorist and leaders of Hamas and the PFLP, while the terrorists killed many Israelis and some Israeli leaders. In 2002, Israel began building a barrier around of the West Bank. The wall cut into parts of the West Bank. Israel said it was a security measure in response to the suicide bombing, and not the border for any future Palestinian state. The Palestinians claimed it was a violation of their human rights. The second intifada continued until early 2005. In 2012, Yassar Arafat's widow said he planned the second intifada, however it is impossible to determine whether the statement is accurate.
In 2005 Israel gave up the Gaza Strip to the Palestinians. In 2007 Hamas, which is regarded as a terrorist organization by Israel, the United States and European Union, won an election in Gaza. Soon afterward, Hamas started firing rockets into Israel. Israel then blockaded Gaza. In June of 2008 a 6 month cease fire was declared. On December 19, once the cease fire expired, Hamas started to fire many rockets into Israel. Israel started airstrikes in response. Hamas refused to stop firing rockets and on January 3, 2009 Israel sent troops and tanks into Gaza. The assault was very successful, and after 23 days, a ceasefire was announce. The assault resulted in more than 1,300 Hamas casualties compared to just 13 Israeli casualties.
In late 2009, Israel started a 10 month settlement freeze to get the Palestinians to resume peace talks. The settlement freeze expired, and Israel refused to extend it, but urged PLO leader, Abbas, to not leave the negotiating table. In response the, the PLO refused to negotiate until settlements were stopped, and have kept this position to this day.