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Very good question, and a difficult one to answer. I think on the Israeli side there is the extreme Zionist dream of taking over the whole of Palestine and expelling all of the Palestinians altogether. It becomes the Promised Land for the Chosen people.
If you read any Zionist discourse you notice that Palestinians aren't treated as real people at all. Their existence, other than as terrorists, is barely acknowledged. They are regarded as imposters and interlopers who migrated to ISRAEL very much like anyone else and have no natural or prior rights there. Very much like the Apartheid myth that South Africa was basically empty (bar a few bushmen) until the Afrikaners came along and built it up from scratch.
Israel does have the military power to expel all Palestinians and coral them into open air prisons on desert land that nobody wants, and some are obviously tempted to use it. Land, water, and natural resources are scare in the region and so it is obviously in the interests of some to grab as much of iy as they can.
On the Palestinian side it seems very much like desperation - if your business, is destroyed, your home is destroyed, and family members are killed or imprisoned, what have you got to lose? However we also shouldn't underestimate the pettiness of power. If I am a militia leader I can control my turf and be a big fish in a small pond - never mind the fact that most people are asphyxiating for lack of water.
When business opportunities so scarce survival depends on political power and the EU subsidies etc. that go with it. What we learned in Northern Ireland is that a prolonged conflict brings more and desperate and violent men to power - on both sides - and their survival in power depends on a maintenance of that conflict. If it looks like the moderates are gaining the upper hand it is easy to re-polarise the situation by letting off a few bombs thus provoking the inevitable Israeli over-reaction. And the cycle goes on.
So the answer to your question is: remarkably few benefit from the conflict directly, and the most radical voices (willing to fight to the last drop of other people's blood) are often to be found thousands of miles away in Tehran and Washington DC. It suits despotic Islamic regimes to have an external bogey figure in "The Jews" on which to deflect popular disaffection and discontent with their own regimes and limited economic opportunities and political freedoms.
The worst thing that happened to Palestinians is that their effectively local grievances got caught up in the larger Islamic disaffection with the West and the Western "War on Terror" in response to it. For all of its many faults, the PLO was an essential secular organisation which sought a Political resolution (involving copious amounts of money and power for itself). Now with Hamas, extreme Zionists, and extreme evangelicals you have religious zealots all pursuing their particular brand of Armageddon and the End of Days. I think a psycho-social rather tan an economic analysis is needed to explain that lot!
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