This shit will never get solved until both sides stop blaming each other and take responsibility for their actions. Both sides need to look at what they've done and what they're doing. The blaming game, which is the only thing you see in the media, never ever produces anything but defensiveness, anger, and territoriality, and more blaming, so it all cycles. That ruins trust, which makes it even harder to stop all the rhetoric, for fear that your empathy and patience will get exploited by the other.
I think there needs to be a separate organization formed of Israelis and Arabs who meet consistently (every other day or so) of people who are dedicated to cooperation, communication and responsibility. The group could make recommendations about policy, and having both Arab and Jewish constituents, could act as a voice of the people, encouraging others to identify with them, rather than being a completely alien organization like the UN, which no one will identify with.
A big part of the problem, imo, is politicians. We need to find leaders with enormous self-awareness and wisdom, and I don't know of too many of those, especially in the Middle East.