Doubt halving it would work. Israel would need to expand it's land to support its growing population, and Palestine would just try and take it again. Wait, Palestine? Palestine isn't even a state, so we would need to sort that out as well. And Israel is a terrorist state, so that too. And anyway, when has halving a country ever worked before? Vietnam? Korea? *insert that annoying hello from myspace emoticon ads*
Well, it's not as if I'm saying we should just straight-half it down a line. Obviously we would need to take into account prior sovereignty--Palestine was a state until 1947 when the British exerted their power and created Israel out of Palestine--to determine specific areas for the Palestinians, as well as current circumstances so we do not simply abandon the current Israeli population. I am aware that this has been attempted--without success--but that is due to the Israelies attempting to prove some sort of soverignty that existed thousands of years ago, while the Palestinian sovereignty is not only proven, it is verfiable as recent enough to count. (After all, it's not as if we should start recognizing the soverignty of the Roman Empire, or Byzantium.)
Furthermore, I would not characterize Israel as a terrorist state, as the Israeli Defense Force is not in the habit of committing terrorist acts against other nations. What they do tend to do, however, is violently overreact to even the slightest Palestinian offense, to the point where in some instances it could be seen as terrorism. The problem here is, again, the hatred ruling the decision making.
Also, this situation is different from Vietnam or Korea as unlike those two cases, we are restoring a nation that did exist and should not have been destroyed by the interference of the British.
On the whole, it is a delicate situation. I emphasize with the people of both sides, as both sides have lost so many to such stupid hatred. I just want it to stop, in a way that benifits both sides without destroying one.