Ok, i know i will be burned as witch, but i have to spend few words on this question.
I think this is not an easy one, this will be one of the conflicts more hard to solve in the actual world's situation.
First of all we (western countrys) have a biased view of the question, for an old and a new reasons.
The old one is the heritage of long century of antisemitism in Europe, culminated in the holocaust, and ALL cultures in Euro (and someway in US too) feel guilty of it and have a biased perception of the Israeli state.
We have the tendence to forgive some expantionism and some nationalism (sionism in this case) expecially of the extreme right of the Israeli politic, because we are afraid to be accused to be antisemith.
The new reason is a simple one, the palestinians made a big mistake to use terrorism to defend their reasons, and Killing innocents is not tollerable by any means.
This had produced in our vision (pheraps too black and white) the feeling of a bad people when thinking of palestinians.
About the terroristic past of Arafat, dont forget Moshe dayan and Rabin himself, they were terrorists at theyr times.
What is happening now is the bad think, the extremists of both sides have stepped in and pushed out the moderates, and this will be completely destructive for the slow and very difficult process to find a solution.
The point is, IMHO, here nobody is right and nobody is wrong, both parts are guilty of some bad thinks, and both parts are victims.
Sadly, at the end who pay is always the innocent, like some poor Israelian killed in a bus, or some poor palestinian child killed in a road.
Two child fighting in an alley, you really care who started?
Or your wish is first to stop the fight?