I don't really think that there will ever be peace in Israel and the nations that surround it. The problem is not the amount of land that Israel has in its possession, it is really that Israel is there in the first place. There is not a single country in the non-Israeli middle east that cares a bit for Israel and many would just as soon see Israel wiped off the face of the earth.
I think that if Israel gives up this land, their neighbors will just continually ask for more and more until Israel has nothing at all. I think that they need to hold to their policies.