It's that the main obstacle for peace between the two parties is the Palestinians themselves. They have been taught hatred for Israel for so long that they cannot accept the existence of a Jewish state. This would normally be the point where the peaceniks either call me ethnocentric, racist, or excessively pessimistic. I prefer to call it realism. Although I have made comments here and there regarding the Palestinian obstacle, I read an article by Benny Morris called Bleak Home that hits the nail on the head.
Morris first points out the problem with the Palestinian mentality:
The first, the one that American and European officials never express and—if impolitely mentioned in their presence—turn away from in distaste, is that Palestinian political elites, of both the so-called “secular” and Islamist varieties, are dead set against partitioning the Land of Israel/Palestine with the Jews. They regard all of Palestine as their patrimony and believe that it will eventually be theirs. History, because of demography and the steady empowerment of the Arab and Islamic worlds and the West’s growing alienation from Israel, and because of Allah’s wishes, is, they believe, on their side. They do not want a permanent two-state solution, with a Palestinian Arab state co-existing alongside a (larger) Jewish state; they will not compromise on this core belief and do not believe, on moral or practical grounds, that they should.
This basic Palestinian rejectionism, amounting to a Weltanschauung, is routinely ignored or denied by most Western commentators and officials. To grant it means to admit that the Israeli-Arab conflict has no resolution apart from the complete victory of one side or the other (with the corollary of expulsion, or annihilation, by one side of the other)—which leaves leaders like President Barack Obama with nowhere realistic to go with regard to the conflict.
Yitzhak Rabin was incorrect was when he said that "you make peace with your enemies." It would be more accurate to say that you make peace with your former enemy. Peace cannot occur until the Jew-hatred dissipates.
Morris then continues to point out that the Palestinians reject a two-state solution:
Another problem for Westerners is that the Palestinians, by design or no, speak to them in several voices. Hamas, which may represent the majority of the Palestinian people and certainly has the unflinching support of some 40 percent of them, speaks clearly. It openly repudiates a two-state solution. Hamas leaders, to bamboozle naïve (or wicked) Westerners like Henry Siegman, occasionally express a tactical readiness for a long-term truce under terms that they know are unacceptable to any Jewish Israelis (complete Israeli withdrawal to the 1967 borders and acceptance of the refugees’ “Right of Return”), but their strategic message is clear, echoing the Roman statesman Cato the Elder: “Israel must be destroyed.”
Morris then concludes with the following:
What remains, in the absence of a basic change of Palestinian mindset, is a bleak picture. No viable peace agreement is remotely in prospect. Neither is the emergence of a full-fledged Palestinian state. A unilateral Israeli withdrawal from the West Bank is so problematic as to be virtually unimplementable. Yet continued Israeli rule over the territory and its people, obnoxious to most Israelis and to the rest of the world, raises the prospect of a bi-national state or an apartheid state, both of which most Jews regard as anathema. That, unfortunately, is where we’re at.
Without the Palestinians wanting the annahilation of the Jewish state, the options look grim. A stalemate won't last forever, especially if Abbas goes to the UN to try to unilateraly declare a Palestinian state. That would make relations more acerbic between the two nations. A bi-national state with the Israeli government ruling over the lands would agitate more than a fair share of people. The Israelis can take over the occupied territories and kick out all the Arabs. Something would tell me that the international media would have a field day with this one. If Hamas somehow managing to succeed in its goal of the anihilation of Israel, G-d forbid, the world would be a much worse place because of it. Therefore, the future of any "peace process" working will be contingent upon the Palestinians changing. Since I fear that they are going to be stubborn in their ways, I'm afraid that this isn't going to end well for either side.