I recommend the following articles to get an understanding of the position Israel is now in regarding Gaza.
First, from Avi Issacharoff at the Times of Israel:
Hamas smells Israel’s fear of escalation, and so the rockets keep coming
Even if Islamist group ignores a reported 48-hour ultimatum, the Israeli leadership will be deeply reluctant to launch a major offensive against Gaza
Note this important part:
There are sound reasons for Israel’s desire to avoid a confrontation with Hamas. First, a major escalation would mean missiles fired at central Israel, and the prime minister wants to avoid that at almost any cost.
Second, the IDF has no desire to get entangled in a Gaza ground offensive, and that may prove necessary after a prolonged pounding from the air. And finally, the Defense Ministry recognizes that there is no better alternative to Hamas’s control of Gaza; ironically, the Islamist group is a leadership that Israel has been able to do business with. Hamas has proved quite pragmatic, and has acted to prevent rocket fire on Israel on more than one occasion.
In other words, according to this analysis, Israel needs Hamas.
Second, from Ynet:
Hamas talks truce terms, but Israel balks
Analysis: With the Arab street at boiling point in Israel and the Palestinian territories, Gaza’s Hamas rulers want concrete achievements to dispel the image of a failing organization, but are walking a delicate balancing act with the ongoing rocket fire.
From that report, this piece is important:
Hamas is trying to change all of this [difficulties in Gaza] in such a way as to ease the population’s distress and allow it to present an achievement to its supporters, thereby erasing its image as a failing organization.
So, on this basis, Israel could have ‘peace’ by giving something to Hamas. Bibi might be prepared to do that, but will the bulk of Israelis not balk at it? Perhaps the weakness of both sides’ leadership may lead to the exact conflict neither wants.