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Jonathan,
You're missing one of my main central points, i.e. that Israel will never be able to make peace with Hamas. They do not want peace, as that would remove the reason for their existence, armed resistance to the oppressor. Israel must make concrete moves that will sideline Hamas by removing their support, i.e. by no longer appearing as the evil oppressor. One of the ways they could directly show this "better nature" to the Palestinian population at large, is by ceasing construction on occupied land in the West Bank, and by beginning the evacuation and removal of illegal settlements. Of course, as we have seen this brings Israel problems of its own with the militant settlers, however these are problems which must be surmounted if there is ever to be a long-lasting solution.