It's a simple proven solution, but it takes time, determination, and a unified vision. Non violent protest.
It might even work. See one of the greatest problems that the Muslims face in trying to achieve their goals is that there is a perception, in America, Israel's largest supporter, at least, that Israel has the moral high ground. I'm not going to debate whether Israel really does have the moral high ground or not. The impression that most Americans have is that the Muslims blow up innocent people with no warning and no regard for the fact that they are civilians, and that the Israelis shoot terrorists in response.
That impression leads to America's strong support for Israel, especially in the wake of the attacks of September 11th 2001. One possible solution, at least as far as the Muslim community is concerned, is to simply stop. Don't blow shit up. Don't shoot a single Israeli, it doesn't matter if they are a soldier or not. Don't throw a single stone again.
It won't change a damn thing for a week or two, the Muslims will lose lives, it's important that they don't respond violently. The only thing The Muslims should do in response to an attack is hold another, bigger, non violent protest. Eventually Israel, the US, and the world will see what's going on. People will see that innocents are dying on the other side too. People will see that the Muslims aren't a "Bunch of Terrorists," that they are people just like you and me, people who go to work every day to try and provide for their family. People will see what the rest of the Arab/Muslim world sees now.
All this is well and good, but it doesn't in and of itself solve the problem, it doesn't create peace. What it does do is give the Muslim people the moral high ground. This puts them in a position of much greater power to create a peace.
It's not as easy as it sounds, not nearly as easy as writing this has been, but it is do-able. Ghandi did it, and defeated what was at the time the most powerful nation in the world. I have every confidence that there is a Muslim leader out there who can do it in the here and now.
That's important too, do it now. Parts, the important parts, of the US government want to wage war on Iraq, one of the largest obstacles to it's ability to do so is the fact that large portions of the Arab/Muslim world loathe the US for it's support of Israel in the continued conflict. That's something the Muslims can use to their advantage too, the US Gvt may not be saying so publicly, but they would be over joyed if this problem would sort itself out, it'd be one less reason for the Muslim community to hate us.