it's possible that I interpreted the problem backwards in my post below - maybe it's not that terrorism is an immoral tool that suceeds (ie, the ends justify the means¹. Maybe it's that injustice is inherently unstable - ie, if you want peace, work for justice - and the human condition is to struggle against injustice². Anyway, this article on Ha'aretz dicusses the economic costs of the occupation and underscores why I believe that a solution to the middle east conflict is inevitable for simple economic reasons (as I mentioned below).

It is true that the worldwide economic slowdown, especially the collapse of the dot-com and high-tech sectors, has contributed to the Israeli recession. But the severity of the downturn here is immeasurably greater than in other western countries, so it is clear that there are also other factors. The principal reason can be found in the fact that Israel continues to hold the territories it conquered in 1967.

On the surface, it might seem that increased security spending is an accurate measure of the cost of the occupation, but this is not so. That cost is also hidden in dozens of other line items in the budget that are not necessary related to security - in civilian expenditures that relate to the cost of maintaining the settlements.

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¹ A principle also used to support things like collateral damage. The hypocrisy of invoking a principle only when it benefits you is obvious, and part of what fuels the perception of my beloved America as a rouge state/terror state/etc around the world.
² sometimes, creating more injustice along the way. Who can argue with the righteous moral high ground of a victim of a homicide bomber? only the craven.