It has been asked, "What is holding up a peace agreement?"
The primary problem is the definition of "settlement." The Arab League considers ISRAEL a settlement. The UN sees no difference between the Western Wall, Gilo, Ariel and tiny outposts in the middle of Palestinian fields in the West Bank. All are on the other side of the green line.
The secondary problem is that Israel considers the 1949 border to be an ARMISTICE LINE rather than a PERMANENT border. Hence, it feels that it is perfectly appropriate to change that border under new circumstances. The US in arguing on UNSC 242 and 338 basically argued the fact that the 1949 border was unstable and that Israel would NOT be expected to return to it.
A third problem is that a Palestinian state was never created. There was a plan for it that was overridden by the recognition of Israel's borders in 1948-1949. Why? Because Israel's recognized border at that time was not in accord with the proposal. There actually is no currently valid boundary of Palestinian territory, only an absence of recognition of expanded Israeli territory.
A fourth problem is connected to the third, namely that the US OFFICIALLY considers ALL OF JERUSALEM to be an INTERNATIONAL CITY as was intended prior to the creation of Israel. This is RIDICULOUS!!! But is the declared reason why the US embassy was never moved to WEST Jerusalem pre-1967, much less to a unified Jerusalem post-1967. Obviously, pressure from the Arab states may have played a SMALL part in that as well.
A fifth problem is that Israel has no reason to fight against its radicals about settling territory when it knows full well that it could withdraw if it wished. The Palestinians also know that in any peace deal Israel will withdraw and cede territory, so to complain about settlement in any form in any place actually distracts from the primary issues.
The primary issues are these: JERUSALEM and control of the Holy Basin in particular, border control both with Israel and with Jordan and Egypt, and a demilitarized Palestinian state. Compensation for lost property will be done through restitution. Neither Israel nor a future Palestinian state could possibly absorb any significant number of Palestinian refugees (Israel because it would threaten the Jewish nature of the state and the PA because it cannot support its current population, much less tens of thousands more people) and therefore that is not really an issue BETWEEN THEM, but primarily one between the UN and the Arab League which will have to agree on absorption of refugees. Land swaps are relatively easily accomplished by comparison.
Everybody knows this and in spite of criticism of Israel, the Obama Administration seems to be in agreement with them as well. Those who oppose what is above, primarily, are those who want to see the ultimate demise of the Jewish state or equally absurd, a Jewish state controlling all of the land that either denies hundreds of thousands of Palestinians any rights of citizenship or expels them. Neither of these are realistic possibilities, much less good ones. Where the Administration is wrong in my mind is in the belief that the Palestinians and Arab League are ready or, more accurately, MIGHT BE ready to deal with the POSSIBLE solutions to the conflict and that forcing Israel to make symbolic concessions will have any effect upon that readiness.
The possibility that it would be of benefit to the US as it deals with the Muslim world not to have continued conflict between a close US ally and the Arab world is a problem that is IRRELEVANT to the pursuit of the solution to the conflict at this point because the basic solution has already been reached. It has simply failed to be accepted by one of the sides in the dispute. The US cannot pressure Israel to concede on any of the major issues because Israel would not be able to comply. It cannot pressure the Palestinians to concede or impose the obvious solution because it would anger the Arab world. The Arab leaders, for the most part, see the solution too, but cannot advocate for it because it would upset the ignorant masses. Hence, the conflict continues.
The argument that the status quo cannot continue is simply wrong. Not only can it, but it will, unless a better alternative is presented and one or both sides choose to pursue it. The fact that they are not is in and of itself evidence that the alternatives present now are not better than the status quo for them. A bad peace agreement can be far worse than the status quo. The obvious solution is one in which the Israelis gain from the 1949 armistice position and the Arab League and Palestinians lose. They don't want to accept that, so the suffering continues in the hope that someday what is unreasonable will be forced upon Israel. Their current hope is that Boycott-Divestment-Sanctions programs will achieve that because military action has failed repeatedly.