As for Israel's neighbors, they are undemocratic regimes so, for them, allies are nice, but enemies are essential. Where else can popular dissatisfaction be deflected? Take Saudi Arabia: Israel long ago proved itself to be the Saudis' best enemy - both reliable and valuable. The Saudis know they face no actual threat from Israel, but hatred of Israel is something Wahhabi clerics - whose theological support the House of Sa'ud requires -- can sink their teeth into during Friday night sermons. Why would a Saudi prince trade that for an invitation to dine in Jerusalem?
Of course, one can make peace with Israel and not break bread with the Jews. Egypt is proof of that. After reaching a settlement with Israel in 1979 and receiving the entire Sinai Peninsula - a territory three times as large as all of Israel -- in exchange, Egyptian president Anwar Sadat was assassinated by Islamists in 1981. His successor, Hosni Mubarak, has understood that Egypt's diplomatic relations with Israel must never be normal, neighborly relations. Blatant anti-Semitism is rife in Egypt. (View, for example, this clip from MEMRI TV.)
There's also this: Tension in the Middle East keeps the price of oil higher than it would be were a durable peace ever to break out. So any country that depends on oil sales - Russia, for example - benefits as long as the conflict stays at least on low simmer. Higher oil prices on the one hand, peace for Jews and Arabs on the other: You think it takes Vladimir Putin long to make up his mind?
As for Iran's Islamist rulers, the vehemence of their jihad against Israel buys them legitimacy and even a chance for leadership within the Sunni world. Is there a better way for a Shia regime to achieve that? Like Hamas and Hezbollah, two terrorists groups they finance (the first Sunni, the second Shia), Iran's rulers have not the slightest interest in such Western diplomatic constructs as a "final-status plan for a two-state solution."
The U.S. and Israel, of course, do adamantly desire peace. Chronic conflict - the normal state of most of the world throughout most of history - is uncomfortable for free and democratic nations to endure. But with so many key actors opposed to peace, there is no way for Israel, even with energetic American help, to reach a lasting settlement with its Muslim neighbors any time soon. That doesn't mean the situation can't improve.
Abbas' Palestinian Authority does appear to be cooperating closely with the Israeli Defense Forces to crack down on both terrorists and criminals. And an improved security situation is among the factors contributing to a remarkable new economic vitality on the West Bank.
Netanyahu calls this the pursuit of "economic peace." Could it pay off over time by persuading more Palestinians - and more powerful Palestinians - to embrace peace as their goal and effectively challenge peace's opponents? Yes to the first; doubtful but not impossible to the second. But why not achieve now what can be achieved now? Surely, cultivating a small oasis is preferable to pursuing a great mirage.