You'll never catch me saying that Israel has been blameless in all of this. You're absolutely right, the settlements are an unavoidable obstruction to a path forward. That being said, Israel has proven repeatedly that given the right motivational prompting, they'll have them down in months if not weeks.
Yes, you're right, there are hard-liners in Israel. But the last time I checked, there was something like 80+% support in Israel for a sovereign, autonomous Palestinian state. There is the political will to make the two-state solution work, even if it means dismantling settlements. Some of the harder issues might start dragging that number down, things like right of return, water rights, arms agreements, the status of Jerusalem, etc.
I have no doubt that if President Obama went to Israel (assuming Likkud wasn't in power at the time) and said then the Israelis would move heaven and earth (and a

load of settlements) to make that happen.
I do not have anywhere near the same confidence level with the Palestinians. I met a very intelligent, kind, reflective Palestinian in Stockholm last fall. He made some excellent arguments about the Palestinians right to exist, about the need for a stable state to check Islamic fundamentalism, which is apparently growing rampantly among the camps, which he bemoaned since traditionally, the Palestinians were viewed as being level-headed and moderate in the Arab world (so said he, not me). But when I posed the question to him of a two-state solution, his style changed. He was still polite, but his statements seemed an attempt to obfuscate. On the right of Israel to exist, he said "all people have a right to live". I myself could drive a truck through that statement, so I continued to press. At the end of the day, the guy, who was intelligent, rational and understood the ramifications of what he was saying, could not bring himself to say he believed in a right of existence for an Israeli state. I laud him on his honesty, but I ask myself... if this is where their most moderate, most tolerant viewpoints BEGIN.... can there ever be peace?
I do not believe the Palestinians, as a people, believe in a two state solution. I've posted articles before that Tribesman will disavow, but they come from the founding charters of Hizbollah and Hamas. They don't just deny the right of Israel as a nation to exist, they deny the right of non-muslims as individual people to exist, and these are the people the Palestinians chose to lead them. I know the majority of the Islamic world don't share that view, at least I hope they don't, but I don't see any sort of resistance to such viewpoints when espoused, and in that, I see a tolerance of intolerance that is very telling about future prospects for peace.
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