Whatever it was, there is never going to be a resolution to the problem. The hate is so deep rooted, steeped in vastly differing theological ideologies and with both sides understandably suspicious of each other and both believing that they have an undisputed right to be there.... basically the place will blow up before either side concedes their claim to the land.... that is why it is imperative that Iran under Ahmadinejad should never be allowed to develop nuclear weapons.
See, the thing is that it's not that deeply routed. Back around 1200 jews and musilms got along fine. It was the Muslims and the Christians that were killing each other.
The problem is that for some reason now the muslim right has hijacked the religion and filled it with antisemitic ideologies. I can tell you as a jew that there is nothing in Judaism that says to hate/kill/fight with muslims. So i don't think it has to do with deeply rooted theological differences as much as it does recent resentment over land disputes that were then transformed into religious beliefs by Muslims.
Again, the governemnt in Israel is not a religious governtment. They are a secular government. Their policies do not favor the religious movement in israel and they are slowly moving more to the left. So to say that the Israeli government's actions are a result of theology is quite wrong. (in fact the more religious Jews in israel are the ones that have the least support for the government of israel.