This AP story discusses the end of the most recent truce between the Palestinian terrorist groups and Israel, after Israel retaliated against a suicide bomber who murdered 20 Israelis.
In almost every argument I've seen (in the mainstream media, not necessarily in blogs), it is accepted that a Palestinian state is a moral imperative. Israel has accepted this, and all the negotiations have proceeded with the eventual establishment of a Palestinian state as a goal.
The only problem with this equation is that Hamas and Islamic Jihad refuse to accept the existence of Israel, and have stated that they never will. In fact, the charter for Hamas specifically calls for the destruction of "the Zionist entity", which pretty much rules out peace between Hamas and Israel.
The United States should allow Israel a bit of latitude, and the Israelis should use the latitude to announce that they will not recognize a Palestinian state until Hamas and Islamic Jihad recognize Israel. At that time (and not before), negotiations will begin.
Some will say that this is unfair, and that Hamas and Islamic Jihad do not represent the views of the Palestinian Authority, or of the Palestinian people. This is simply incorrect. The PA's refusal to REALLY crack down on terrorism is due in part to a shared belief in the terrorist groups' stated goals, and even more importantly, is due to the enormous support these groups derive from Arabs in Gaza and Judea and Samaria. A true attempt to rein in militants could result in civil war amongst the Arab factions, and Arafat desperately wishes to avoid such a situation. It would be bad for the Palestinian Arabs, and would create problems for Israel in the short term (refugees and more unrest). However, in the long run, it would be likely to work to Israel's advantage; once the dust settles, there would be only one group representing Palestinian interests, and it is much easier to negotiate with one group.
I support Hillary Clinton and John McCain's efforts to encourage the Israelis to complete the wall around the West Bank; the wall would help contain a Palestinian civil war to non-Israeli territory. Almost all of the suicide bombers come from Judea and Samaria, because the wall around Gaza keeps the terrorists there away from Israel.