Israel knows that peace just doesn't pay
Successive Israeli governments since 1993 certainly must have known what they were doing, being in no hurry to make peace with the Palestinians. As representatives of Israeli society, these governments understood that peace would involve serious damage to national interests.
The security industry is an important export branch - weapons, ammunition and refinements that are tested daily in Gaza and the West Bank. The Oslo process - negotiations that were never meant to end - allowed Israel to shake off its status as occupying power (obligated to the welfare of the occupied people) and treat the Palestinian territories as independent entities. That is, to use weapons and ammunition at a magnitude Israel could not have otherwise used on the Palestinians after 1967. Protecting the settlements requires constant development of security, surveillance and deterrence equipment such as fences, roadblocks, electronic surveillance, cameras and robots. These are security's cutting edge in the developed world, and serve banks, companies and luxury neighborhoods next to shantytowns and ethnic enclaves where rebellions must be suppressed.
The collective Israeli creativity in security is fertilized by a state of constant friction between most Israelis and a population defined as hostile. A state of combat over a low flame, and sometimes over a high one, brings together a variety of Israeli temperaments: rambos, computer wizards, people with gifted hands, inventors. Under peace, their chances of meeting would be greatly reduced.
Damage to careers:
Maintaining the occupation and a state of non-peace employs hundreds of thousands of Israelis. Some 70,000 people work in the security industry. Each year, tens of thousands finish their army service with special skills or a desirable sideline. For thousands it becomes their main career: professional soldiers, Shin Bet operatives, foreign consultants, mercenaries, weapons dealers. Therefore peace endangers the careers and professional futures of an important and prestigious stratum of Israelis, a stratum that has a major influence on the government.
Damage to quality of life:
A peace agreement would require equal distribution of water resources throughout the country (from the river to the sea) between Jews and Palestinians, regardless of the desalination of seawater and water-saving techniques. Even now it's hard for Israelis to get used to saving water because of the drought. It's not difficult to guess how traumatic a slash in water consumption to equalize distribution would be.
Damage to welfare:
As the past 30 years have shown, settlements flourish as the welfare state contracts. They offer ordinary people what their salaries would not allow them in sovereign Israel, within the borders of June 4, 1967: cheap land, large homes, benefits, subsidies, wide-open spaces, a view, a superior road network and quality education. Even for those Israeli Jews who have not moved there, the settlements illuminate their horizon as an option for a social and economic upgrade. That option is more real than the vague promises of peacetime improvements, an unknown situation.
Peace will also reduce, if not erase entirely, the security pretext for discriminating against Palestinian Israelis - in land distribution, development resources, education, health employment and civil rights (such as marriage and citizenship). People who have gotten used to privilege under a system based on ethnic discrimination see its abrogation as a threat to their welfare.