I think you missed my point entirely. The history is irrelevant. Its not the Israel of the Bible/Torah/Koran. It is modern-day Israel, recognized by the international community with borders, a capitol and embassies throughout the world. it is a member nation of the UN.
I didn't. The history is key to this conflict, as so many people look back at it on both sides and feel that they are wronged as a result of the meddling of other parties over the last 60 years+.
There is a modern-day Israel, and it does have defined borders, but it has not stuck to them and has annexed land belonging to other countries (this is part of the dispute).
We can argue whether or not Palestinians are oppressed. Ignored? That isn't even debatable. They are the most recognized and talked about people without a nation on the planet.
But they are not recognised by the people that matter. For Palestine and Israel to negotiate a peace, there must be recognition between the two. How can you discuss a peace deal with representatives of a country when you deny that country's existence? Israel's Arab neighbours refused to recognise Israel and attempted to oppress it, culminating in the 6-day war. There's a perfect example of why the current setup doesn't work.
You say both nations can exist side-by-side. Thats theoretical. For that to happen, the PA must reject Hamas, a terrorist organization, first and foremost. Secondly, they PA must not be a safe harbor of terrorism. These are requirements for the world governments before they can do anything more to help. Meet them, and more things can happen.
It is theoretical, and it's definitely chicken and egg at the moment. Hamas will not lay down it's arms whilst Palestinian civilians are gunned down/blown up in the streets, and the Israelis will not lay down their arms whilst militants launch rockets over the border and blow themselves up on buses. If you are pointing a gun at another man, and he is pointing a gun at you, and you distrust each other, would you be capable of taking the first step and lowering your weapon?
There needs to be some form of compromise here. If Israel makes concessions that takes away Hamas' popular support, then it will cease to exist. The problem is that Hamas is a direct reaction to what the Palestinians see as Israel's direct oppression of them and encroachment on their territory. The Palestinians see this very struggle as a battle for survival and recognition against a superior oppressive opponent. The very name "Hamas" means "Islamist Resistance".
Mossad is a reaction to Hamas and others. If Mossad didn't exist, more than likely you'd see Israelis picking up their own weapons and forming their own militant groups. Mossad exists in the strength that it does as a direct reaction to Hamas and the other militant groups who target Israeli civilians. It is a symptom of the problem rather than a cause of it.
Next, we have to address the unique situation of Israel's existence. It is surrounded by enemies that want nothing less than its total destruction. No one can expect Israel to give up land that will out it at a strategic disadvantage. Its not different than the US not allowing Soviet missiles on Cuba during the 60s. Some things are just too much of a strategic weakness to be acceptable.
The only way that a peace can be reached is if there is compromise. Israel is not weak, it has a military and weapons far exceeding anything of it's neighbours, and has done since it's formation. I would argue that the giving up of land does not put it at a strategic disadvantage when you take it's military might into account.
Israel's encroachment onto land it does not own is also part of the problem as mentioned above. It's neighbours see settlement building as occupation of the land and displacement of the current landowners, just like the native Catholics in Northern Ireland perceived the settlement of English Protestants as occupation and displacement (another fine mess created by my country), and we all know how that ended.
So who brokers the solution? The EU? Not likely. The problem with the EU is it is an economic alliance, not a political one. When the EU nations speak about Israel & Palestinians, it is with a discordant voice. Russia? With their relationship with Iran, that might not be a bad idea, at least as one member to the party. China also has influence. Maybe a middle east summit jointly brokered by the US, China and Russia?
I like that idea, but I don't see any US president buying into it. They all want to be the rock star.
At the end of the day, Israel still holds all of the cards. Should their patience ever wear thin, they could eliminate the PA quickly and decisively. They have the military capability to eliminate all of their enemies and the public will to do it. But that would be a nuclear option (at least figuratively) because world opinion would turn quickly against them unless they were provoked.
And why should Palestine come exclusively from Israel? How about some land from Israel, some from Jordan, some from Lebanon and Syria? Or is Palestine simply the excuse for Arab anti-semitism?
It doesn't matter how you look at this, there is no good solution. The not thing that is certain - granting Palestinian statehood before finding that resolution will be disastrous. It will destabilize the region and I'm nearly certain set in motion the events that lead to the next world war.
The best possible solution for me is to get both sides talking, and then for those two sides and their neighbours to compromise. What is more important, peace with your neighbours or more land to secure yourself against the theoretical threat of war, and their distrust of you as a result?
All sides have to give something up to get this to go anywhere, and that won't happen whilst the Israelis feel threatened or the Palestinians feel oppressed/wronged. I fear (as per the rest of your post) that there isn't anyone capable of sorting out this mess. Numerous politicians, empires, and countries haven't helped, and neither has both sides blowing each other up. Everyone in this messy dispute is far too entrenched in their own positions and refuse to give anything up.
The problem is that the whole region was never split cleanly into countries. In the past, Arabs and Jews lived side by side, most of the time peacefully. No matter how you carve it, you cannot seperate these people into different nations down boundary lines (Jerusalem is a perfect example of this). A different approach is needed, but I'm not sure what or how. If it was that easy to figure out, it would have been solved already