Maybe Abdul al-Average of northern Hebron doesn't care for Jerusalem, and maybe Shaul Someone of central Tel Aviv doesn't either. But there are radical Jews and radical Muslims who believe their religion has the sole claim for the Temple Mound, and they will never stop fighting, nor stop drawing innocent people into it. And when a radical Muslim suicide bomber kills Israeli babies, it will radicalise more Israelis, and when the IDF kills Palestinian babies, it will radicalise more Palestinians. When the borders this happens in were defined doesn't play a role.
This is a rather grim and pessimistic view, but after several wars, several periods where the parts have attempted peace talks, and several periods of intifada, violence and mistrust, I can only agree with it - I simply do not believe the conflict will see a solution that both sides will see as
fair.
In retrospect, we can probably say that the partition plan of 1947 was a mistake when the UN didn't want to back it up with military force. Had the major powers of the world sat down in 1947 and agreed they would "police" the area and strike down on both Jewish and Arab aggression, then maybe it could have been possible to establish a Jewish-Arab state there.
Instead, the parts in the area were left to themselves (with support from different world powers), and the Jewish leaders (with Ben Gurion at the helm) seized an opportunity. One could say the Arab neighbour states started the actual hostilities in 1948, but noone could be surprised that they actually went to war. We cannot sit here today and say that the Arabs have themselves to blame because they went to war, especially not the Palestinians (they weren't the ones who started the war - the neighbouring Arab states did).
At the same time, we can't tell the Israeli Jews that they were wrong to establish a state. After what happened in the years before, who would blame them for establishing what could only be seen as a safe haven for them? (Safety is relative, of course, but back in 1948 it must have felt like it).
Since 1948, both sides have continued to pour fuel on the fire every now and then. One can certainly argue that an established Palestinian state within clear borders (the 1967 borders are mentioned more often) would be a step in the right direction, but there are still unresolved questions that a Palestinian state within the pre-1967 borders would not resolve:
- The descendants of the refugees from the 1948 war. Israel won't let them move back to the cities their grandparents left, and for many of them there's no home to return to anyway. Israel won't do it because letting them all in would mean the Jews would become a minority.
- The Jerusalem question, as described by @Perun, cannot be solved in a way that both Jews and Muslims are fully content with.
- Extremists on both sides fully believe that the entire area belongs to them. Of course, signs of progress would reduce the support for the extremists among the general population, but I cannot see the extremists becoming marginalized any time soon.