Real estate mogul Lord Harold Samuel said that three things matter in the property market, "location, location, location." A great deal of the Arab-Israel conflict can be traced back to these three things. Both the Islamic Koran and the Jewish Old Testament mention many of the areas in Jerusalem and its surroundings as sacred to their religions. Thus both groups want control over those pieces of territory to ensure access to them for religious purposes. Both groups also believe that their deities have promised them those territories, and so there is a fundamental conflict in which two opposing groups both believe that they have not only historical but divinely authorized claims to the same piece of real estate.
Next, many Arabs still resent the European, and especially British, conquest of Palestine, which they see as a continuation of the Crusades, an historical conflict in which Christians intervened to claim the traditional Abrahamic "holy lands" from the Muslims. When the British created the Jewish area in Palestine, that began a process culminating in the 1948 Arab–Israeli War and the creation of the state of Israel, which displaced many Palestinians from their homes.
Because Israel was founded just after the Holocaust, many Israelis have been particularly concerned about the necessity for a Jewish homeland, and feel that any attempts to limit the security of Israel are an existential threat to their very survival, while many Muslims see support for Israel as an extension of European crusading against Arabs.
The years of conflict have bred a cycle of injustices. Every time Palestinians bomb civilian areas in Israel or Israelis kill Palestinians, that simply serves to inflame existing tensions and create additional grievances.