Israel can thrive without US aid. They have per capita incomes apx 5 times greater than Jordan or Egypt or Syria or Lebanon. They have foreign reserves approaching $30B, among the top in the world. Their economy is greater than several EU nations. The Intel chip in your computer was probably designed in Israel. ICQ chat software was developed in Israel. They innovated water conservation and irrigation techniques that are now the standard in industrialized nations. Israel has more PhD's per capita than any other nation on earth. If Israel didn't have to allocate so much of her resources to defense she would probably be twice as prosperous as she is today.
The problem has always been with the Palestinian leadership. Since 1964 (3 years before occupation) they have been avowed enemies of Israel, vowing to destroy her and drive the Jews into the sea. And you expect them to make unilateral concessions to an enemy that yearns to destroy them? You want the USA to force one country to withdraw before the other side agrees to peace? What stupid nonsense.
There will be a Palestinian state, and Israel will withdraw, just as soon as Arafat is gone and the Paletinian people have a Constitutional democracy that guarantees freedom of speech, universal sufferage, freedom of the press, due process, freedom of religion. It is bad policy and bad precedent for the USA to negotiate with terrorists, and bad policy to assist in the creation of yet another brutal despotic Arab regime.