Answer: There are two basic reasons.
One is the total distrust and hostility on both sides. Israelis are afraid for the safety of our country - in light of repeated proclamations by Hamas and many other Palestinian groups that they want to destroy us. Palestinians are distrustful because Israel has been settling the West Bank for fifty years, eating into land that is could make up an independent Palestinian state.
And, of course, both sides have suffered much at the hands of the other - I know many people who were killed or hurt in terrorist actions, and every Palestinian, I think, knows someone killed or hurt by Israelis or in an Israeli prison.
The other reason is a basic conflict of interest. I answered elsewhere about the basic issues that could not be solved in negotiations; on both sides, they related to the need for a viable future. Israel can not accept unlimited return of refugees (unlike everywhere else in the world, the UN decided Palestinian refugee status is hereditary so some hundreds of thousands are now five million or so). And the Palestinians cannot accept leaving Israeli settlements that would prevent them from having contiguous territory for their state.
Explanation:
Cmon u gotta give more points if u r asking for us to write a 1 paragraph. :)