My suggestion, thou the current Israeli government will never allow this:

*Immediate withdrawal of troops and settlers to the pre 1967 borders. *Replace the Israeli military presence in the occupied areas with UN troops from neutral countries. UN troops protect both parts in this conflict from each other. The Palestinians have little reason to fighting UN troops since they woul be there for their own benefit as well.
*Issue international police help train the Palestinian police in what they should do (arrest criminals).
*Disarm the fighting factions, I guess they would be a lot more willing to let this happen with the hostile occupation ended.
*Israel has stolen most of the water in the area, this has hurt Palestinian farmers a lot, water must be distributed in a fair way.
*Open up the Palestinian borders to the neighboring countries so that they can trade and work with them as well.
*Stop all anti Arab propaganda in Israeli schools and media.
*Stop all anti Jewish propaganda in Palestinian schools and media.
*Instate an Adult training program to counter the effect of being affected of the above mention propaganda.
"-Contrary to what you have been told before, they are not evil."

There are probably a lot more that needs to be done but this could be a start.