It is very clear that the minimum the Arab Muslims will accept is that there be one state between the desert and the sea, and in that state Arab Muslims will be first class citizens – the official language being Arabic, Islamic law being respected and follow to the extent they want to follow it, and the rulers being Muslims. Anything else is temporary. This is unacceptable to virtually all Israelis other than a small number of hareidim (which might become “most” hareidim if the Israelis serious attempt to implement conscription of hareidim). The only possible peace solution would be for the Jews in Eretz Yisrael to settle for autonomy and rights while respecting that they are in the Arab middle east (and while they might insist on a nuclear equipped milita and right to use Hebrew in dealing with the government, they couldn’t insist on things that Islam opposes such as gay rights or liberal abortion laws).
From the Arab perspective, they have no “peace partner” since the minimum Israeli demand (a zionist state with boundaries the Arabs will respect) is totally unacceptable.
This arguing over the West Bank is silly, as most Muslims (and many Jews) to not distinguish between East and West Jerusalem, or between Hevron and Haifa.
Given that an increasing number of Israelis are unwilling to bear the burden of perpetual warfare (and note the number of non-frum draft evaders and non-frum Israeli Jews who fled the country and live abroad), the Israelis would be well advised to negotiate a peace agreement now, from a position of strength, rather than wait until one is imposed on them.