One simple way to look at this question is to ask which side has the power to end the conflict at this point in time, and clearly it is the Palestinians. If Palestinian terrorist attacks stopped today, Israel would not launch any further attacks. On the other hand, every one of Israel’s conciliatory gestures (proposing a two-state solution, withdrawing from Gaza, etc.) has been met with renewed violence on the part of the Palestinians.
Consider, too, that the stated goal of Hamas (aka the elected Palestinian government) is the destruction of Israel, whereas the majority Kadima party in Israel supports a two-state solution.
One final way to look at it – the “perfect weapon” argument. If either side could have access to a weapon which would only kill “legitimate” targets (soldiers, terrorists) and not civilians, would they use it? Israel clearly would; as it is it attempts to emulate such a weapon as much as possible, although it isn’t always possible to avoid civilian casualties when Palestinian terrorists are protected among civilian human shields, including children. Palestinian terrorist attacks, on the other hand, purposely target civilians. This is not an academic distinction; it is a profoundly important moral issue – and it certainly says a great deal about who could better be trusted with a nuclear weapon.
As Golda Meir said, “There will be no peace until they love their children more than they hate us.”