You can dance around the terms, the reasons, but in reality it is a religious war. The social problems can help quell so much hatred but that does not change the fact that we have two opposing religions, similar to Ireland, that are engaged in a struggle to the death of a particular religion.
You cannot remain a free and democratic country, when you have a growing minority in your country that has loyalty to your enemies. In the election that elected Rabin and his Labor Party (with Clinton's and Carvile's help) he got a minority of the Jewish vote. They won with the Israeli Arab vote. They then went on and made the same mistake another minority leader made (Allende) and tried to push through extremely controversial, life-changing programs. The Laborites gave Israel the "Oslo Process" which brought Arafat and the Palestinian Authority right in the door.
Kahane was right, push the Arabs out, form a defensible border, turn Gaza over to Egypt and put up a security wall. Basta.