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Well, I think Arafat alone isn't the main problem.
A bigger problem is that there is no single Palestinian voice; some want to have peace at any cost, others want peace *and* security for Israel, others want Israel gone altogether, and yet others want to kill each and every Jew on the face of this planet.
If Arafat wants to stop the terror, he has to go up against the hardline groups like Hamas. This is extremely difficult, because a) they have a lot of fanatical supporters, and because b) they're not only terror groups - they also fund schools, hospitals, and many other *good* things. If he does attack them, he'll be seen as a traitor by many Palestinians, and he'll probably be killed pretty damn soon. (Of course, he has other reasons not to attack - he probably makes a lot of money because of all this crap.)
On the Israeli side the problem is less severe; they don't have a single voice either, but on the whole they're less extreme. There's a small minority against any peace at all, but these groups do not have such a large following as Hamas does, for example; nor do they control large parts of the civil infrastructure.
How would we end this cycle? Well, one could try a dual approach; 1) send in the big guns to deal with the terrorists (*all* of them, including that annoying Hamas leader with his squeaky voice). This will be bloody, brutal, and very nasty. (I suggest we also shoot any moron that thinks terrorist can be persuaded to stop fighting just by asking them nicely...)
2) send in independent aid shipments and install an entirely new civic structure... remove the terror groups from their supporters, and give the rest of the Palestinians a chance to live. One cannot, however, expect the Israelis to just let the Palestinian workers back in; not while there are many potential suicide bombers hiding amongst them...
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