Last time I talked with Palestinians (a doctor and a psychologist from the West Bank, who emigrated to France in the early 2000s, one having studied in prison after throwing rocks to Israeli soldiers when he was a teenager) they did not care that much about Israel.
They both recalled daily water service cuts, natural gas service cuts, fuel shortage, power grid failures, lack of medication... Also, obtaining any document (ID, passport) was a hassle, because it needed to go through both Palestinian and Israeli authorities (the later having a habit of blocking the delivery process).
Whether the IDF is actually using attrition warfare against the West Bank and Gaza to fight terrorism, or these issues are only caused by Palestinian long standing economic issues, I don't know. But as long as the IDF will control whatever commodities that go in and out of Palestinian territories, Palestinian people will blame Israel for this.
The only way I can see out of this war is the sanctuarization of some aspects of Palestinian territories economy. They need economic growth, but most importantly they need to know this growth cannot be halted by a political turnaround from any side.
It would mean that these goods and services (food, water, energy, construction materials, access to work -in Israel if needed-, health services, real estate) could not under any circumstances, be interrupted as retaliation to acts of terrorism. And of course, in order to work, it would have to be overseen by Israeli-Palestinian joint commissions. If these commissions were to be elected, both Israeli government and and Palestinian authority would have to back candidates who would not block the system. Control administrations recruiting both Israeli and Palestinian civil servants would also be needed.
After some time, in order to protect a system that restores a "normal" life style, Palestinians would start to take real actions against terrorism themselves, and later, hatred would start to fade away.
Now this is why such a solution would never work : on both sides, people working in common administration would be labelled traitors (even if it's just about water production or common vegetables market).
Some Palestinians would see the initiative as Israel trying to break their "resistance". Some Israelis would quickly realise that massive arrival of Palestinian workers in lower wages positions lowers global wages in the country. Then, they would also realise that the common administrations are robbing the country from its economic sovereignty. I'm not sure Israelis would be happy to participate to common administrations budget a lot more than Palestinians do (necessary to make it work) and have exactly the same political weight (necessary to keep peace). All I can imagine is Palestinians killing Palestinian terrorists, and Israeli governments going through waves of social panic and repression, from farmers to low-wage workers and colonists... Peace would not be cheap...