Israel knows they have to get out of occupied lands. They can never annex those lands because in a democracy the Jewish State would be voted out by Palestinians. Israel can give it all back - but they need acceptance of it's right to exist and guaranteed security - and being so small and surrounded by it's enemies it cannot afford anything less. Israel has always said they would negotiate and compromise if the Palestinians rejected and dismantled the terrorists and militants, which so far they have been unable and unwilling to do. Israel will get out of Gaza for starters, but unless the militants are controlled in reality- things won't improve much if at all. I know what you are going to say - just get out of the occupied territories and the militants will go away-   
If you believe that then you are in some kind of fantasy land. The PLO has to assure Israel's security by outlawing them and dismantling them. Can you imagine USA being attacked by terrorists almost every day? You think Bush or any American government would just put up with that? Do expect Israel to?