It’s a racial/ethnic rivalry. The religion just helps clarify the sides.
Both sides want the land. Both sides are too pig-headed to come to a compromise, even though neither side allows pigs in the diet.
If you want to take the palestinian side - they were there for thousands of years (say almost 2000) since the Jews were dispersed by the Romans after their second revolt.
200 years ago there were almost no Jews in Palestine, now there are millions; many came just after WWI and then WWII.
As can be expected when cultures clash, both sides started fighting to try to force the other side to leave, to avenge previous attacks, etc. The exact causes and results of the fights, who attacked whom, etc. - you will get different versions from different sides.
The issues are simple and complex - the arabs attacked the nw state of Israel in 1948 when the two states were created, and lost big time. The second try in 1967 didn’t do much better.
Israel occupies the palestinian territories, since 1967.
If they annex them, then theywould have to acknowledge the Palestinians as citizens with all the rights of citizens. Demographically, the Palestinians will outnumber Jews, and the next election would be a disaster.
Or else, they set up an apartheid system, where Palestinians have no right to vote.
If they let the Palestineians become an independant country, then what borders? Why? Legally, the borders are those of the 1948 partition or the pre-1967 settlement boundaries. Fanatical types say all of the terrirtory should be Israel, and the Palestinians can just bugger off and have no right to be there.
Because of a shortage of land, many housing complexes have been built (continue to be built?) on formerly Palestinian land. Nobody wants to leave their nice home - to entice people to live there, these houses on occupied territory are heavily subsidized. Access roads and the border fences cut across Palestinian farms with little regard for the owners rights.
Note that “former Palestinian land”. The process for acquiring and “buying” that land are heavily weighted against the Paletinians.
Many Palestnians fled during the wars of 1948 and 167, and then fond themselves unable to get back to their land on the other side of the Palestinian frontier. They “own” land in Israel, but are not allowed back. Any settlement would probably have to settle the “right of return” by either buying it off for hundreds of thousands or swapping land. Both choices are not trivial. On one side, the radical Jewish sects decry any giving away of one inch of greater Israel and on the other side, no Palestinian government has the balls or temerity to confront the question in a realistic manner - they still insist everyone should be able to return, a totally unrealstic position.
Meanwhile, there’s Jerusalem. The original UN settlement in 1948 gave the historical old city to the arabs, but when Israel conquered it in 1967, they annexed it. Very few governments will acknowleged this as legitimate (see arguments above over right of return, citizenship, etc.) and UN rules forbid unilateral annexation. Israel says its capital is Jerusalem, but except in an election year, western governments maintain Tel Aviv is the capital. The paletinians insist it is Palestine, and like other issues, also refuse to compromise.
Logically, this should be settled with some sort of “international zone” status for the historical old city. However, this would require significant compromise by religious fanatics, so probability… zero.
The Palestinians have not even been able to agree that a fundamental tenet of any peace agreement would be acknowledging Israel’s right to exist. As long as they stick to that point of view, nothing is going to change.
Until now, Mubarak has had an interest in keeping the Palestinians in the Gaza strip from getting too troublesome, since fanatical muslim organizations like Hamas were troublesome to Egypt as well. The next government in Egypt will be more populist and less inclined to compromise with Israel, although they will not want war. So expect the Gaza strip militants to be better supplied and more troublesome in future. Once again, Israel has had 30 years to solve the Gaza problem and has frittered away all that time.
One of the recent interviews, with a retired strategist for the Israeli forces, he basically said the current government has zero interest in coming to a settlement with the Palestinians. They seem to think their current upper hand will contnue to keep them safe.
I personally think they are coasting towards the edge of the cliff and they had better look for compromise before it’s too late…