I think the biggest problem is that palestine is not a real state now. Change this and it would not be allowed anymore what israel is doing.
Unfortunately im not sure that it would end well because the hate in palestine is too big. But stopping the ongoing feelings of injustice, coming from such deeds, is crucial to not create more and more fighters.
Even if Palestine is declared as a separate state, comprising of the West Bank and Gaza Strip, the conflict will not end. There are a lot of other issues, such as the return of Arab refugees of 1948, and the status of Jewish settlements inside West Bank.