I imagine the various groups would have different answers. Some would be accepting of honest religious conversion (as the religion has been since the beginning) while others would still object to a separate national identity based on the ethnic identity of Jews. The resistance by Palestinians has never been fought on explicitly religious grounds but rather on geographic grounds; conversion would not remove that problem. Then other groups would still object since the conversion likely wouldnt be to the proper brand of Islam.
I think that's a large part of why the problem is so intractable. There are vastly different motivations for the violence and they're all knotted up such that there aren't any simple solutions and simply cutting the Gordian Knot doesn't make anybody happy either.
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