Seanibu, religion has very little to do with it. In terms of land, Israel and Palestinians fight over three areas - Gaza Strip (already handed over to PLO), West Bank, and Jerusalem. The
only component that is indeed about religion is Jerusalem. Actually, even that is not entirely true - from a purely religious point of view, Hebron is far more important than Jerusalem, and the former has been almost fully under Palestinian control for a while now. Jerusalem is a symbol; for centuries, Jews have been concluding Passover services with "next year in Jerusalem"; it's very hard to give any of it back.
Also, let's remember that Israel originally did
not intend to keep the occupied territories (with the exception of East Jerusalem and may be a part of Golan, I don't recall now). Israel immediately offered the land back back to Jordan, Syria, and Egypt with only one condition - that they recognize Israel's right to exist! That was all! Agree that the new neighbor is there to stay and you won't try to evict him - and you get you land back! US was very happy, thinking this would surely put that issue to rest. To the amazement of the world, however, the three loosing nations turned the offer down.
And, of course, there was also the Camp David summit with Clinton, Arafat, and Barak. At the time, the latter offered Arafat everything he could realistically want - only to be turned down. Now, there is a big issues as to whether or not Israeli Knesset would have ratified the treaty anyway, but the fact that Arafat turned it down says a lot about the approach of the old Palestinian leadership. The current president Abbas does, I think, have political will, but then again he is now is the middle of a civil war, one he cannot blame on Israel or the US.
Do not get me wrong, I am not saying that Israel did not make mistakes. For one thing, it got very cocky after the 6 days war victory; the disaster of the Yom Kippur war (and to some extent of the recent Hebullah war) is the result. Moreover, it painted itself into a corner regarding the territories - not only does this create a huge disenfranchised population, but also takes a disproportional toll on the young man and woman who have to risk their lives protecting the tiny settlements. However, even saying that the situation is unacceptable, I would like to point out that for all the talk of the horrid conditions the Palestinians live in (and yes, I agree, those are horrid conditions) there is something curious in the HDI index. HDI is the Human Development Index UN puts out each year. Palestinian territories are at #100, above both Syria and Egypt. Too bad the impoverished Syrians and Egyptians don't get a hundredth of the sympathy the poor Palestinians do! Oh, and while we are on the subject - isn't it interesting that the Palestinians still have to live in the refugee camps in those Arab countries claiming they are all brothers? We are talking people who were born outside Israel, and still the only place they can live is a refugee camp! Ah, but of course this is still Israel's fault, not the fault of cynical and corrupt Arab governments that prefer to keep them living in abject poverty as opposed to helping them out.
For Political reasons, most European countries would be more than happy to throw Israel under the Arab train. I, for one, am very happy that America is willing to stand up to the world, and stand with Israel.