Tom Segev writes in Haaretz that Israel could have once chosen peace but as usual decided to pursue Greater Israel:
On December 5, 1967, then-chief of staff Lt. Gen. Yitzhak Rabin suggested to prime minister Levi Eshkol that a Palestinian state be established in the West Bank. The minutes of that conversation are kept today in the state archives. Rabin had in mind a state “that would be connected to Israel.”
Six months after the Six-Day War, this was not a subversive or particularly “leftist” idea. Rabin, who had commanded the troops during the war and was about to head to Washington as Israel’s ambassador, did not want to return the West Bank to Jordan. He looked for a way to overcome the demographic problem: “We are not going to relocate half a million Arabs,” he said. Eshkol was dubious. “Will the new state have an army?” he asked. Rabin said it would have a police force, not an army. “Who determines that?” asked Eshkol. Rabin answered: “We do.” Eshkol was not convinced and Rabin acknowledged: “It is a matter of a lesser of evils.”
The idea somehow faded, emerged several years later and again disappeared. Forty-three years have passed, during which not a single serious new idea was raised that wasn’t raised since the first months after the 1967 war; 43 years of going in circles.