@Matt & co.
Ever heard of proportionality? While I do not wish in any sense of the word to condone the actions of Islamic hotheads, there is a grim statistic which is borne out by recent conflicts.
1:100 - The ratio of Israeli deaths to Palestinian deaths.
For every civilian killed by Palestinian rockets, one hundred Palestinians will be killed via Israeli attacks. The ratio of civilian to militant Palestinians is probably impossible to even estimate - the whole point of guerilla warfare is that the militants blend into the community, so until they actually wield their weapon, it is impossible to distinguish militant from civilian. As for why people are tempted into militancy, perhaps the 80+% unemployment rate in Gaza plays a factor. After all, if young local men were gainfully employed in full time jobs, would they be able to spend as much time building rockets and firing them North or East?
It's also worth remembering that Israel has had numerous UN resolutions proposed against it since 1948, pretty much all of which have been blocked by Israel's most powerfully ally - the US.
However, despite all the gestures to the media, neither side appears interested in peaceful co-existence. Each side has distrusted the other since 1948 (and I suppose for the past few thousand years, as evidenced by a cursory glance at the Judeo-Christian religious texts) - and documentaries have shown that schoolchildren on both sides are taught that the opposition is evil / subhuman / no right to live on the land etc.
Israel has consistently refused to legally define its borders, and many politicians have gone on record as desiring a larger area than that defined by the UN 'Green Line' - from the relatively conservative line being marked out by the "Security Fence" to politicians wanting the Gaza Strip and West Bank to be part of a unified Jewish state, to those (mainly from previous decades) wanting the whole of Transjordan as well.
Similarly, many Palestinian politicans have gone on record (and received more media attention) for wishing the exact opposite - a (conservative) Islamic state.
Fatah have adopted a more moderate line recently, but many Palestinians associate them with being corrupt and inefficient . Besides which, when they had democratic elections a few years back (which IIRC were certified as free and fair), Hamas won.
It has to be remembered that Hamas isn't just a bunch of military hotheads - one of the main reasons they have such high levels of support amongst the population is their extensive social welfare network. Which has caused problems for several charities working in Gaza and the West Bank - Israel and the international have often shut them down even though they are not associated in any way with Hamas, on the merest (unsubstantiated) suspicion that funds may find their way into the wrong hands.
Due in part to their history, many Israelis are paranoid about their state - as they have been engaged in numerous conflicts with their neighbours over the past few thousand years they regard any attack on their territory as a direct threat to the very existence of their state. Their ideal scenario for surrounding states is for them to be either demilitarised or run by puppet governments who will always back Israel's stance on any issue. Check out their vision for the Palestinian half of the "two state solution" - completely demilitarised, with Israel retaining some settlements and "strategic corridors", some internal checkpoints remaining, and definitely checkpoints at all points of entry into Israel.
The other fallacy of a two state solution is Gaza - how could the Palestinian administration in the West Bank effectively administer a satellite territory to which they wouldn't be able to access?