I'm sorry but you're wrong, Krusher. The main issue with most fundamentalist Muslim's is the Israel situation, and specifically continued American backing for that State. It's the reason they quote most often and it's the biggest grievance.
Rightly or wrongly, the whole region is a mile-high neon sign with "Look at this American-backed aggression killing women and children of Islam" emblazoned on it lurid scarlet writing. The fundamentalist nutcases go crazy over it, and the moderate muslims also see it as a great injustice. Consequently, moderate opinion hardens, and recruitment for groups like Hamas and, more globally, Al Queda increases.
While Sharon keeps telling the Palestinians "We will take your land, your water and your livelihoods", the Palestinians will respond with suicide attacks, supported by a despicable Palestinian authority. In turn, while the suicide attacks continue, Sharon gains more support for his strong-arm tactics, turning more Palestinians into martyrs for the 'cause'. There never will be a resolution until this cycle is broken. The huge blood letting will never come to a conclusion, and as time passes it becomes more ingrained into the pyche of both protagonists.
The last suggestion for a Palestinian State was a joke. It didn't address water rights (a big sticking point), it still restricted movement within the State itself between Israeli controlled zones. The continued expansion of Israeli settlements into Palestinian inhabited land just cannot continue if any peaceful resolution is to be sought.
I don't hold much hope, to be honest.
