The settlements aren’t the central question. They’re a tragedy in part because they obscure the central question of this conflict. The only question is: can the world of Arab Islam accept the idea of Jewish national equality? That’s the question, and I don’t know the answer to that.
Naturally, I shade toward pessimism on that question. I’m recalling, among other things, that the Six Day War wasn’t started because of the settlements. If you study the history of the last one hundred years, you’ll see that this is the central animating cause of the conflict. And I don’t see much evidence that Arab Islam can assimilate this idea right now.
The broader Muslim world doesn't accept the idea of Jews. Period. Forget about "Jewish national equality". It's important to remember that the concept of a dhimmi -- a perpetual, conquered, slave -- started with Jews under Muhammad:
A classic precedent of the dhimma was an agreement between Muhammad and the Jews of Khaybar, an oasis near Medina. Khaybar was the first territory attacked and conquered by the Muslim state ruled by Muhammad himself. When the Jews of Khaybar surrendered to Muhammad after a siege, Muhammad allowed them to remain in Khaybar in return for handing over to the Muslims one half of their annual produce. The Khaybar case served as a precedent for later Islamic scholars in their discussions on the issue of dhimma, even though the second caliph Umar I subsequently expelled the Jews from the oasis.
Try telling one billion Muslims that Muhammad's example should not be followed.