Rational but wrong.
The problem is that this conflict is, at it's heart, a religious war. It is the desire of many Muslims to see Israel eradicated. Several of those who wish Israel's demise are religious leaders with fanatical followers.
The PLO, Hamas and other groups in the area are more religious than governmental. Trying to apply rationallity to religious "reasoning" is an exercise in futility. The PLO charter specifically requires the destruction of Israel as a nation.
The goal is the destruction of Israel.
The only carrot that will work is one that allows that goal to be realized. What stick could be applied to change this goal? Economic sanctions? Boycott? I don't think we are much of a trading partner with Palestine so I don't see what use these would be.
Reasonable people can compromise. When one group isn't reasonable . . .