Honestly, Israel and the Arabs all gain from the status quo. A two state or one state solution would be way too messy, both in reality, and politically. It's always good for politicians to keep people riled up about some cause. And most Israeli politicians probably consider the current situation as manageable. Few casualties, and every so often when it gets a little worse, have a small military operation to cool things back down. Good for other Arab countries as well. The more they point to Israel as the source of problems, the less they have to worry about another Arab spring.