The Israelis have a Jewish state and are repressing the Muslims. If the Palestinians had their way, it would be a Muslim state and they'd be repressing the Jews. Why don't they just make the entire region one big country that sponsors no religion? And allow everyone the right to privatly practice whatever religion they want, or no religion at all?
Won't happen because each side looks down upon the other for not believing in the same things they do. So it's likely the Israelis will continue treating the Palestinians like sub-humans, and the Palestinians will continue blowing up Israeli children and grandmothers.