Unfortunately, this conflict is based on the clashing of religious paradigms, and it will never be solved peacefully unless one party is wiped out completely. At this point, it is all but impossible to make ultimate justifications for either party for any meaningful resolution. Too much has happened and for too long. Generations of people have been locked in, and the reasons don't even really matter to them anymore.
However, consider this. There are some 50 Islamic countries in the world, should the Jewish people not be allowed to have even one? And why is it that even Palestine's Muslim neighbors are not willing to take Palestinians in in this dire situation? Seems weird, unless there is a very good reason.