Though, it sounds great, a democratic Israel where Palestinians and Jews live peacefully is not going to happen. Personally, I feel that the only solution is the two state option. Palestinians have to recognise and accept Israel and stop the rocket attacks. Israel has to pull back from the occupied territories and help the Palestinians build the infrastructure, help build their own country. Stop the blockades, release the prisoners and stop the collective punishments.
All this tit-for-tat revenge will never end and we have younger generations who hate each other. Israel needs to recognise that World opinion is going against them. Making peace with the neighbours and the Palestinians would be their only way to survive in the long run. I know it is easier said than done and the eagles on both sides would try their best to prevent this from happening.