Arabs (i.e. Muslims) want to live in peace with people of all religions, as long as these people live as ahl al-dimma or second-class citizens under Muslim rule. Muslims would have no problem with millions of Jews living in their countries as inferiors (just like Christians living in Arab countries today) but they have a big problem with Islam not being on top, i.e. a Jewish government.
Muslim peace is in dominance - as long as Muslims have the upper hand, there's peace. And even then, non-Muslim minorities are routinely harassed and discriminated against and savagely attacked, like the five Christians who were recently riddled with bullets in Iraq. It's never enough.
So to answer your question, as long as Muslims require the destruction of the Jewish political entity (Israel) for peace, there will always be war, because the Israelis are never going to just put their arms down and let their nation be destroyed and live with Muslims as lackeys and slaves.
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Also, the earlier poster is absolutely right, Jews do not worship the same god that Muslims do.
The Jewish G-d does not send non-Jews to hell, does not order Jews to spread their faith by the sword and dominate the world, and does not order Jews to increase their numbers instead of their knowledge, sophistication and wisdom. The concept of the "Chosen People" is that Jews were chosen to reveal the word of G-d (the Bible) and help humanity and develop the world, not that Jews are superior. Just the opposite, Muslims believe heaven/Jannah is ONLY for them, and believe themselves to be the superior people. The Qur'an says
"Kontom khaira umatin okhrijat lilnaas," i.e. "You were the most favored nation summoned to the people [of the world]."
Non-Jews who follow the Seven Noahide Laws, basically a watered-down version of the Ten Commandments, reach salvation, and this is why Jews never care to preach - to a Jew, it's not IMPORTANT for you to be Jewish, it's important to respect G-d and be a good person. Jewish Halacha law, with all its controversies, has not been practiced in 3,000 years, and Jews believe it cannot be practiced until the return of the Messiah.
It's true that once upon a time Jews did execute apostates, stone adulterers to death, etc, but this was the accepted normal law of the ancient world, along with Babylonians, Sumerians, Egyptians, Greco-Romans, etc. Read the Babylonian Code of Hammurabi from the same time period - if a son slaps his father, his hand shall be cut off, if a man spreads a rumor about another man and cannot prove it, he shall be put to death. The ancient Jews were no more strict than any other ancient people, and application of the Halacha stopped in the 1000s BC. Modern Israel is the only truly secular state in the Middle East.
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Muslims on the other hand, believe that non-Muslims go to hell even if they are kindly, that everyone must accept Islam or burn and suffer the Qur'an's abhorrently graphic descriptions of Allah's torment, that bloody Shariah law (which includes executing ex-Muslims, cutting off the hands of thieves, stoning adulterers, flogging fornicators and alcoholics, killing prostitutes, etc) is the perfect law for all ages and places and should be the ideology of the world, that Muslims must have as many children as possible even if they can barely feed themselves, and that they must spread Islam by any means all over the world. No religious Muslim here will deny that.