As a starter, the president MUST dictate to the Arab leaders to impose on all clerics a moratorium on preaching hate of the Christians and Jews! The president MUST also ask the Israelis to UNILATERALLY start to dismantle the Jewish settlements; that would be a good start for rapprochement!
The Palestinians cause was never an Islamic cause. It is a liberation / self determination cause that was hijacked by the Islamic movement subsidized by Iran and Saudi Arabia. A different Palestinian leader MUST take over from Arafat. The president and the Arab leaders must impose a leadership on this crazy bunch, with the promise for economic boom if they take on a pro-western leader. I recommend James Zoghby, the American born commentator. Arab States MUST absorb some of the refugees to alleviate the crowded life in the camps, and help the economic development of this desperate people.
These are some ideas to get some confidence building measures between the hostile parties.