It is true that Israelis are mostly Jewish and Palestinians are mostly Muslim, but religion is pretty low on the list of direct drivers of the conflict. This is not, despite what your grade school teacher may have suggested, a clash between Judaism and Islam over religious differences. It's a clash between nationalities — Israeli and Palestinian — over secular issues of land and nationhood.
Initial Palestinian armed movements were largely secular, as well. They were not, despite common misconceptions, Islamic extremists; they were Palestinian nationalists not unlike the Irish Republican Army were Irish nationalists. Some early groups were even officially communist. It is true that more recent groups such as Hamas, which formed in 1987, espouse Islamism. But beneath their language of jihad is, in significant part, the same nationalist drive of previous groups.
There is one aspect of the conflict with a more overt religious dimension: Jerusalem. The long-divided city has, in its ancient center, Islam's third holiest site (the al-Aqsa mosque compound) located physically on top of the much older Temple Mount, the Western Wall of which is Judaism's holiest site. That means both Israelis and Palestinians want access to the same area for religious reasons. (There is a similar, smaller dispute over the West Bank city of Hebron.) But the dispute over Jerusalem is, in practice, still experienced more as a political than a religious issue.
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