I think Palestine can definitely do a lot to stop it. If they unified behind non-violent protest, and stopped terrorism that could be the biggest possible step anyone could take. Israel however could do something other than wiping out the palestinians. If Israel sought to deal justly and fairly it would most likely help things a great deal. There is an Israeli military ordinance that prevents the Palestinians from building any business that would compete economically with Israeli business. With ordinances like that out of the way the Palestinians could begin to build their own future. Palestinians workers who did the most menial tasks in Israel were having money deducted from their pay checks for Pension and Healthcare. The only problem is that the Palestinians aren't eligible for either of those programs. Water allotment for an Israeli settlers drinking water is equal to the total allotment for a Palestinian farmer, who must irrigate his crops, cook, clean, bathe etc. Rectifying these situations are just some steps that Israel could take that might help to reduce terrorism against them. I don't think any of those discriminatory practices in any way justifies terrorism. But if Palestinians saw more hope for the future through peaceful and legislative means, then support for terrorism may go down.
While those are certainly good things to do, I don't think they would have any positive effect on terrorism. For every concession that was made, the Palestinians would likely only become emboldend and press forward with more terrorism in the hope that more concessions would be made. That way lies disaster. Until the Palestinains make a concerted effort to stop terrorism, any concessions, especially any interspersed with more Palestinian terrorism, would be suicidal.
Hydra, You may be right that it wouldn't decrease terrorism. There is no way to really tell. For one thing I would hope Israel would do it and try a different tact, because the current one isn't working. I also hoped that if more young Palestinians saw a hopeful future, they would be less inclined to join or support terrorism. Of course the biggest step would be for the Terrorists to try a different tact and stop the terrorism. I would just like to see one side try something new for a change.