Egypt is working with Israel to rebuild the Palestinian government security forces in Gaza and the West Bank. During the last few years, the Palestinian police have been drawn into the fighting with the Israelis, and supporting terrorist operations against Israelis. While doing that, the Palestinian police and security forces were largely destroyed. Egypt is sending in 200 trainers to recruit and train a new Palestinian security force of 30,000 men. The 1970s peace treaty with Israel restricts the number of Egyptian police that can be stationed on the Israeli border. But Israel want more Egyptian cops on the border to crack down on the smuggling or weapons, and other goods, into Gaza. Egypt wants to crack down on that as well, and a new arrangement is being negotiated that will put another hundred Egyptian police on the border.
But the major problem remains the Palestinian extremist groups, whose goal is the destruction of Israel. Hamas, and the smaller terrorist organizations, are willing to work out temporary truces with Israel, but "peace with Israel" is impossible to the extremists. So Israel will deal with this by moving all Israelis (troops and settlers) out of Gaza (save for a few observers on the Egyptian border). But to placate Israeli extremists (who want Israel to take over the West Bank, and some who want to expel all Arabs from Israel) , the security wall around the West Bank will continue to be built and Israeli settlements in the West Bank will be expanded.
Israel is pretty much ignoring negotiations with Palestinians, because the Palestinians have been unreliable and hostile since they dropped negotiations and began the terror campaign (the Intifada) in late 2000. The Israeli strategy is to isolate the Gaza and West Bank Palestinians so that terror attacks on Israelis becomes a rare event. This has already happened, and as a result the Israeli strategy has the backing of most Israelis. Not all Israelis agree with this strategy, but as a matter of life and death, they feel compelled to go along with it. The evacuation of Gaza is planned to finish by the end of 2005.
If the Palestinians can control their extremists, the Israelis will negotiate again. Israel can take on its own extremists in proportion to how reliable the Palestinians appear to be. That means it is possible to get the Israeli settlements out of the West Bank, but only if the Palestinians make a convincing offer of peace. Right now, that appears to be a very distant goal.