No quarrel with your take on religion, but wrt the behavior of the Israelis and Palestinians, I don’t know that I’d call it irrational. There’s method in their madness, a kind of meta-rationality that evolved because it helped our ancestors demand their fair share even against those who might overpower them.
But it also means we can’t expect the two parties to work out the solution on their own. Nothing will change until America puts real conditions on future aid to Israel. It’s entirely within Israel’s power either to grant Palestinians full rights and citizenship, or else return all the land they stole in the West Bank. The Palestinians don’t have the power to really do anything to improve their own status. So the US should use its leverage to demand real progress.