In order to grasp the complexity of the conflict, I think it's appropriate to also look at issues that somehow lie behind 'raw politics', such as religious issues (see Melissa's recent discussion) and economic ones.
The availability and distribution of water in dry Israel-Palestine is one such issue. It's hard to achieve peace when large-scale economic injustices prevail. The World Bank says that Israel gets four times more water than Palestinians, "although both share the mountain aquifer that runs the length of the occupied West Bank" (Guardian article, 27 May 2009).
The article and the WB report are here:
Overall, of course, water is a scarce resource for both Israelis and Palestinians, although it's apparently scarcer for the latter. Solutions need to be found to ensure sustainable water availability in the Middle East, but such possible solutions must not work for one side's gain alone.
Desalination of Mediterranean water seems to be a highly efficient option, but large-scale Israeli desalination projects again throw up the question of redressing injustices as the water to be desalinated "in fact partially belongs to the Palestinians but is inaccessible for them" (irc.nl article, 17 March 2009 -- http://www.irc.nl/page/47170
Water is both an obstacle to peace (in case it's unfairly distributed) and a trigger for peace (economic development through a fair water share in the Palestinian territories could potentially improve security aspects). Read also this: