I heard some good insight on this topic recently (‘Best of the Left’ podcast, most recent.. always an awesome show!)..
First, as I see it, the size of Israel’s arsenal is good, because it means that no country is going to fuck with them and start an even worse conflict. I.e. Iran or anyone else is going to think twice before going in there.
Second, Israel is making things worse by putting Palestinians in what are basically ghettos not unlike the Jewish ghettos in WWII. Palestinians are going to be understandably angry. Then to rack up a death count of Palestinians that is a thousand times larger than their own, is just strategically irresponsible. It makes it harder for their one ally (the U.S.) to support them, nor does it score them any points with the rest of the Earth.
Third, nonetheless, the Palestinians exacerbate the situation by launching little rockets continuously into Israel, which just makes them look bad in the international community. Not to mention their primitive anti-western attitude which also gets them little sympathy.
So sorry to sound a little pretentious, but its like children fighting children. I say screw them all and let them sort it out themselves, and no more aid for Israel until they can learn to solve their problems diplomatically.